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FATE OF THE MIDDLE 
CLASSES 



By WALTER G. COOPER, 

Secretary of the Atlanta Chamber of Commerce 



CONSOLIDATED RETAIL BOOKSELLERS 

NEW YORK 

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®N®RESS 

S£P 18 1905 
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COPYRIGHT I905 

By WALTER G. COOPER 



PRESS OF FOOTE & DAViES CO., 
ATLANTA, GA. 



PKEFACE 

As we saw during the anthracite strike, the 
consumer is between the upper and the nether 
millstone. 

The larger concern is not the fate of one class, 
but the welfare of all; nevertheless, injury to 
one element of the population afflicts the whole 
community and the only way to make sure of 
the general good is to guard the interests of 
every class with jealous care. 

This end is best attained when each class 
realizes that self-protection is the best protec- 
tion, self-help the best help, and self-respect the 
surest guaranty of the respect of others. 

In nature everything but dead matter is or- 
ganized, and organization is the method which 
self-help and self-protection nvnst adopt. 

The separate organization of the different 
members of society is as natural as the separate 
organization of hand and brain. Producers have 
their alignment and now comes the consumer. 

No class has a monopoly of virtue, but each 
has its critical period and that time has arrived 
for the middle classes. 



in 



CONTENTS 



Chapter. 

Introduction 
I, — The misfit of industry . 
II. — The lesson of the crops 
1 1 1. —Origin of panics 
IV. — The rise and fall of prices 
V. — The boom and slump of stocks 
VI. — Imperative need of economy in 

DUCTION 

VII.— Regulation of production 

VIII. — HOW NATURE HELPS REGULATION 

IX. — Shall competition survive? 

X. IS IT A NEW FRANKENSTEIN? 

XI. — AN IRREPRESSIBLE CONFLICT . 

XII. — The separation of classes 
XIII. — Separation of laeor and capital 
XIV. — The struggle of classes . 

XV.— Organization of the consumer 
XVI. — Evils and remedies . 
XVII. — The final merging of classes 
XVIII. — Effect of combination on the 

DIVIDUAL 

XIX. — The lift of thrift . 

XX. — Political changes 
XXI. — The social body moves upward 



Page. 

1 
. 17 
. 23 
. 29 
. 34 



PRO- 



IN- 



45 
52 
70 

74 

89 

93 

98 

101 

117 

125 

130 

142 

145 
158 
164 
175 



FATE OF THE MIDDLE CLASSES 



INTRODUCTION 



THE effect of trusts on the mass of man- 
kind is the phase of this great develop- 
ment which most vitally concerns the public 
and many have essayed to tell what this effect 
will be. It is, however, impossible to arrive 
at any definite conclusion on the subject until 
we know what is the office for which this great 
institution was called into existence. 

No great institution has ever developed 
among men until there was a task for it to per- 
form, a task for which no previously existing 
institution was adequate. 

Taking examples from politics, the institution 
feudalism, hateful as it was, came in time to 
gather the scattered fragments of civilization 
under baronial chiefs, and through their war- 
fare and the conquests of chief over chiefs, be- 
came the stepping stone to monarchy. 

Monarchy, repugnant as it is to our ideas of 
liberty, when hard pressed by the barons, ap- 
pealed to the people, and thus took the first step 
to arouse in them the desire for self-govern- 
ment. Industry is developing along the same 
lines and its evolution just as surely tends to 
elevate the masses. 



FATE OF THE MIDDLE CLASSES 

Each institution serves its day and contin- 
ues to serve other generations until conditions 
arise which require some other and different 
service by a new institution. 

Turning to industry we find the early guilds 
of craftsmen serving their time well, up to the 
eighteenth century, when the factory system 
arose. 

Then there was a new division of labor and 
its relations to capital became different from 
any that had been known before. Under the 
factory system the trades unions arose among 
working men ; and during the century or more 
of their existence, these unions have had a re- 
markable development. 

So far as capital is concerned, the factory 
system affected it by intensifying competition. 
An incidental effect was to hasten the accumula- 
tion of surplus products in the markets. 

Increased competition at length reached the 
point where it was destructive to those engaged 
in the contest for trade. Finally there came a 
time when the stronger competitor crowded 
the weaker to the wall and the big fish swallowed 
the little fish. So consolidation came as the re- 
sult of conflict, industrial peace as the natural 
consequence of industrial war. 

All this is well understood, but with it there 
was a perfectly plain fact, looming as large as a 
mountain, which somehow escaped general no- 



FATE OF THE MIDDLE CLASSES 

tice. The hastening accumulation of surplus 
goods in the markets brought about stagnation 
every little while, and stagnation in business 
caused innumerable disorders, whose existence 
was not generally suspected until a financial 
panic emphasized the danger. During the past 
fifty years these periodical depressions have 
caused civilized countries more wrecks of for- 
tune and more human suffering than all the wars 
mankind has engaged in during that time. 

It is worth while to observe here that the rapid 
accumulation of surplus, which is at the bottom 
of all this trouble, came about through the di- 
vision of labor in the factory system, which tre- 
mendously increased the productive power 
of the human race. The blessing of progress, 
which enriched the race and multiplied com- 
merce by eight during the life of Queen Victo- 
ria, also conferred a devil's gift of over-produc- 
tion, which mocked the world as it made haste 
to get rich. If the world can now get rid of 
this devil's gift and hold fast to what it has 
gained by the factory system, an immense stride 
will have been taken in the progress of civiliza- 
tion. 

Many futile efforts have been made to deal 
with the evil of over-production and it is clear 
that no existing institution is equal to the task. 
There is in existence no institution which has 
the information or the power necessary to pre- 



FATE OF THE MIDDLE CLASSES 

vent over-production. The division of labor is 
so wide and so complex that no one can discover 
a surplus until it has accumulated and its bane- 
ful effects are unavoidable. If the thing were 
known, there is no single agency or set of agen- 
cies sufficiently powerful to adjust production 
to consumption. Until we do make such an ad- 
justment the frightful waste will go on and woe 
unspeakable will continue to follow in its wake. 

Long observation has convinced the author 
of this book that machinery is in the making to 
perform the great service for which the whole 
business world is crying out. 

During the life of this generation a great in- 
stitution has been born out of the wrecks of com- 
petition. Dire necessity was the mother of this 
invention, which we call the trust. Humanity 
was ever in travail at the birth of its institutions 
and this one is no exception to the rule. We 
are not therefore to conclude that it is useless 
because it made trouble when it came into the 
world. This is the rocky road of progress. 
The stumbling blocks of the present are the 
stepping-stones to the future. 

In the following chapters I undertake to show 
how the trust is a necessary step towards the fed- 
eration of industry and the eventual establish- 
ment of an industrial clearing-house, which will 
approximately adjust production to consump- 
tion and save the world the immense loss and in- 



FATE OF THE MIDDLE CLA88E8 

calculable suffering that is now caused by over- 
production. 

Having reached this point we have gone far, 
but are still distant from the end of the great 
problem, and well might we pray, like Milton, 
for strength to reach the height of this great ar- 
gument. For the certainty of the trust and the 
further prospect of its federation make the orig- 
inal question of its effect upon the mass of man- 
kind one of tremendous importance. There 
never was an institution with immense possibili- 
ties for good, that did not carry with it im- 
mense capacity to damage or destroy. 

Every great development in industry creates 
a new body of laws and complicates the task of 
government. Witness the factory acts, corpor- 
ation laws and labor legislation, with their far- 
reaching effects upon the lives and pursuits of 
the people. Industry and government are indis- 
solubly connected and they act and react on each 
other with every change in their structure. 

Inevitably the consolidation and the federa- 
tion of industries must affect the form and spirit 
of the government. If there be at any time an 
imperial industry in a democratic government, 
one or the other must change. They can not 
continue to shape the customs, thoughts, habits 
and lives of the people in different directions. 
Either the democratic influence of the govern- 
mental form and habit of thought will make for 



FATE OF THE MIDDLE CLASSES 

popular control of the consolidated industries, 
or the imperial influence of industry operating 
upon the minds of men, will bring government 
to the same condition. 

But popular control of industry does not nec- 
essarily mean government ownership. On the 
contrary it seems more likely to take the form 
of a wide diffusion of shares among the people, 
and, perhaps, through co-operation or profit- 
sharing a larger participation of the employees 
in the earnings of industry. 

There is also the interesting question whether 
the man behind the gun in the great industries 
will become a mere cog in the vast machinery, 
or will, by their very magnitude and complica- 
tion, be lifted to a higher plane of usefulness, 
demanding more liberal compensation along 
with larger ability and more careful training. 

These are some of the important phases of the 
great problem discussed in the following pages. 



Chapter I 

THE MISFIT OF INDUSTRY 

Our wonderful productive methods waste enough 
to build homes for a million families a year. 

IN order to learn what trusts are for, we must 
study the conditions which give rise to them. 
Corn was burned as fuel on the plains when 
people went hungry in cities. Coal miners 
were on a strike for living wages at a time when 
people in a neighboring city were shivering for 
lack of something to burn. 

One morning in the winter of 1884, when the 
temperature was near zero, I saw in the railroad 
yards of Cincinnati, a delicate girl in a calico 
dress and cotton stockings, with only a thin 
shawl thrown over her shoulders, trying with 
blue and benumbed fingers to pull from the 
frozen mud a few scattered lumps of coal which 
had fallen from the cars. At the same time the 
miners of the Hocking Valley were out because 
the price of coal was so low that the operators 
could not pay them enough to keep families 
comfortable. 

Bread and coal were drugs in the market 
while people went hungry and cold. 

During the depression of that winter, follow- 
ing the panic of May, 1884, thousands of wage- 



2 FATE OF THE MIDDLE CLASSES 

earners were idle. In many cases it was en- 
forced idleness. In others they were idle be- 
cause the product of their labor was so low in 
price that they were willing to starve awhile 
rather than take the poor wages their employers 
could pay. 

These troubles were alleged to have resulted 
from over-production. How was there too much 
coal when people were cold ? How was there too 
much corn when people were hungry? The 
answer to this question reveals the cause of de- 
pression in prices, stagnation in business, lock- 
outs, strikes, and panics, which in twenty 
years have cost this country enough to build 
homes for all the people. 

It is, in a word, the misfit of industry, the 
ill-adjusted production, which makes too much 
of one thing and too little of another, so that 
the country, lacking some things, has of other 
things a surplus unabsorbed, which, like undi- 
gested food, throws the whole system into dis- 
order, and if long unabsorbed causes distress, 
In other words, it is a case of economic indiges- 
tion that afflicts the body politic at such times. 

If the task of every factory and every laborer 
could be so adjusted that the product approxi- 
mately balanced the demand for it, the prime 
cause of this disorder would be removed. 

At present this can not be done, because no 
one knows the demand accurately and no one 



THE MISFIT OF INDUSTRY 3 

can control the supply. We only know there 
is a surplus when it is too late to avoid the con- 
sequences. 

The effect of surplus is cumulative. A little 
surplus depresses the price of the whole product 
and a larger surplus causes depression in still 
greater proportion. Sometimes a ten per cent, 
surplus will cut down the price twenty per 
cent. When prices go down, work and wages 
are cut short. Purchasing power is diminished 
and then the market for other goods begins to 
feel the depression, which extends from one in- 
dustry to another. They fall like ninepins, 
under the weight of each other. But the pendu- 
lum swings to and fro. After people have suf- 
fered and starved awhile, the surplus is pain- 
fully absorbed. Then prices go up, wages go 
up, and work is plentiful. We have good times 
once more, and everybody hails the era of pros- 
perity. 

But the said era has in it the seeds of death ; 
for it induces the same activity which causes 
surplus and the distressing results that follow 
it. 

This is so much a matter of common knowl- 
edge that the figures of speech we use unwit- 
tingly attest its truth. People speak of a 
"wave" of prosperity, meaning, of course, that 
there are troughs between the waves. 

What shall we say then? Is industry the 



4 FATE OF THE MIDDLE CLASSES 

cause of the trouble ? Not at all, but the hap- 
hazard way in which it works. We work like 
demons, all in the dark, until some bad symp- 
tom of the times opens our eyes to the fact that 
we are working to bad purpose. 

The division of labor has brought about a 
condition where no human being can tell in ad- 
vance what the demand will be and how large 
a supply will meet it. 

Consequently, there is no check on industry 
until the market is overstocked. Then it is 
too late to avoid the consequences. 

If it could have been known in time that 
the product was larger than the demand, the 
excess of labor might have been turned in some 
other direction, so that production on the whole 
would not have been curtailed, but would have 
been better adjusted to the needs of mankind. 

The recent experience of the silk industry 
in the United States will illustrate this point. 
Mr. S. H. Ditchett, Editor of the Dry Goods 
Economist, describes it as follows in an article 
published by the New York Times on January 
5, 1902 : 

"The state of the silk industry is in marked 
contrast with that prevailing a year ago. For 
many months prior to the close of 1900 manu- 
facturers confined their production chiefly to 
one class of fabric, thus making far more than 
the consumption could take care of. Had 



THE MISFIT OF INDUSTRY 5 

they been prudent enough or possessed sufficient 
capital to hold this product until the demand 
grew, matters would have been better. But 
each manufacturer being in a hurry to sell, 
prices declined until the cost of production was 
reached and sometimes underpassed. Gradu- 
ally, however, matters improved. Manufac- 
turers began to diversify their product, and 
the prosperous condition of the country created 
a liberal call for silks. The demand caught up 
with the supply, and in the spring the very goods 
which a few months before had been a drug on 
the market were almost unobtainable." 

Having apparently learned this lesson, the 
silk manufacturers forgot it very soon, and 
within the next two years the same folly was re- 
peated. 

Another illustration is the depression among 
cotton mills which prevailed for several years 
as the result of a tremendous increase of produc- 
tion in the Southern States. In 1890 the mills 
of these States spun and wove 547,000 bales of 
cotton. In 1900 they turned 1,621,000 bales 
into goods. The number of spindles, which had 
been 561,000 in 1880, was 6,532,000 in 1900. 
Most of these mills were engaged in making 
coarse goods, in which competition is most 
strenuous. 

It is not surprising that the cotton goods 
market was in a sensitive condition in the sum- 



Q FATE OF THE MIDDLE CLASSES 

mer of 1900, and when the Boxer outbreak in 
China cut off much of the Chinese demand for 
the product of Southern mills, depression en- 
sued. This depression lasted several years. 
Its effect is already seen in the efforts of South- 
ern mills to diversify products and make finer 
goods which will avoid the competition that 
bears most severely on the lower grades. But 
the important point here is that the excessive 
production of cheap cotton goods was not real- 
ized until a condition had been reached which 
made depression for several years a certainty. 

One of the most familiar examples of misdi- 
rected productive energy is seen in the large 
crops of cotton. Within a few years the price 
has varied from five to seventeen cents as the 
result of increase or decrease in the world's 
supply. The 1903 crop of 10,045,000 bales 
brought more than the 1904 crop of 13,584,000 
bales. In three years preceding the panic of 
1893 the loss from low prices below the average 
of the preceding decade was $200,000,000. 

This immense shrinkage in the value of the 
leading export product of the United States 
curtailed the purchasing power of the farming 
classes in the South, and affected the demand 
for goods made in other sections and sold in the 
Cotton States. 

Thus we see how ill-adjusted production in 
one part of the country affects others. 



THE MISFIT OF INDUSTRY 7 

That the same effects spread from nation to 
nation is equally apparent. The depression in 
Germany cut off so many customers for Ameri- 
can goods that our exports perceptibly dimin- 
ished. Dullness in Manchester mills affects the 
American cotton-grower. 

Every publicist warns agricultural communi- 
ties against the single-crop system, because it 
leads rapidly to the production of more than the 
market will take at remunerative prices. The 
Irish potato, for this reason, is called Sir Wal- 
ter Raleigh's fatal gift to the Emerald Isle. 
Likewise the all-cotton system, for a while the 
rule with Southern planters, has been described 
as the cause of their difficulties. They have 
been constantly urged to diversify their crops 
in order to prevent over-production of cotton, 
with its consequent ruinous depression of price. 

The cotton planter's experience illustrates 
clearly the idea of ill-adjusted production, 
which I have called the misfit of industry. 

Here is a case typical of thousands : Farmer 
Jones has been planting corn, wheat, and other 
necessary supplies, including the provender for 
horses and mules. His crop of cotton brings a 
cash surplus for the purchase of such articles 
as he can not produce. He has made a corn 
crop at a cost of about 40 cents per bushel and 
has no transportation charges to pay on it ex- 
cept the cost of hauling from field to crib. 



8 FATE OF THE MIDDLE CLASSES 

Other food crops are produced with equal 
economy. 

His cotton sells for ten cents and he concludes 
it will pay to put most of his land in cotton, 
and if necessary, buy corn. 

To force his land he buys fertilizer and mules 
on credit. The high price of cotton induces a 
majority of Southern farmers to increase acre- 
age at the same time and the result is an im- 
mense crop. The next fall the price of cotton 
falls to six cents or even five cents. All at once 
Farmer Jones wakes up to the fact that his cot- 
ton will barely bring enough to pay his ferti- 
lizer notes and the notes he gave for horses and 
mules. He is lucky if he does not have to give 
up the live stock. 

In the meantime little corn has been planted ; 
there is not enough to feed the people and the 
farm animals. The same is true of other food 
crops. That winter the farmer must buy corn 
and provisions to tide him over until he can 
make another crop. His heavy loss on cotton 
has wiped out his cash capital and he has to 
buy Western corn on credit, after it has been 
hauled a thousand miles and freight has been 
paid in proportion. It costs him $1.00 a bushel 
and he must haul it from town. He has a sim- 
ilar experience with hay and pork. 

There we have a clear case of ill-adjusted pro- 
duction by one individual. Any one can see 



TEE MISFIT OF INDUSTRY 9 

what is the cause of his trouble. This has been 
the experience of a million farmers at one time 
in the Cotton States. Indeed, it may almost 
be said to have been the experience of all, for 
the cotton craze has many times taken a very 
large majority of Southern farmers in its toils, 
and the low price affected all, the few who 
planted little as well as the many who planted 
much. 

Exactly the same experience has come to 
wheat growers. It is the experience of all one- 
crop farmers sooner or later. 

When the individual farmer is in distress, 
the whole agricultural population (the sum of 
of the distressed units) is in equal trouble. The 
aggregate loss and the total suffering produce 
a condition of depression which can be imagined 
better than described. Suffice it to say that in 
wide reaches of Southern territory the farming 
masses, in the year following such an experi- 
ence, have been forced to do without meat and 
live on bread and syrup until they could make 
another crop. 

When the agricultural class, constituting 
three- fourths of the population, is in this condi- 
tion, trade languishes in the Cotton States. All 
industries which depend upon the farmer to pur- 
chase their goods must temporarily reduce sales 
or sell on long credit, either of which alterna- 



10 FATE OF THE MIDDLE CLASSES 

tives will impair the financial strength and re- 
duce the purchasing power of the people en- 
gaged in these dependent industries. In the 
years 1900 to 1903 the crops of cotton were not 
greater than the world's demand, prices were 
good, and food crops on the same farms were not 
neglected. Consequently Southern farmers 
have been more prosperous than ever before. 
But over-production in 1904 made a large crop 
sell for less than the small crop of 1903. 

What is so clearly seen in the farmer's case 
is equally true of the manufacturer. Instances 
already mentioned show that it is true in the silk 
and cotton industries. 

The difficulty in avoiding this ill-adjusted 
production is in the multiplicity of competing 
establishments, no one of which knows just what 
the other is doing. 

An amusing instance of this occurs when the 
farmers meet in convention and solemnly re- 
solve to plant less cotton. Then Farmer Jones, 
returning to his home, goes into executive ses- 
sion with himself and resolves that as the acre- 
age is to be cut down, the crop will be small and 
the price high. Consequently, he decides that 
now is the time to plant cotton. The majority 
of the farmers, who can not go to the convention, 
read about it in the newspapers and come to the 
same conclusion. The result is that an im- 



THE MISFIT OF INDUSTRY n 

mense crop is planted. In 1905 the farmers 
were better organized and the cotton acreage 
was considerably reduced, but not to the extent 
the resolutions called for. 

Human nature works in the same way among 
manufacturers, except that production is stimu- 
lated to even greater excesses by the more 
strenuous competition which causes the manu- 
facturer to strain his resources in the effort to 
outdo competitors. Still other pressure moves 
him. He must keep his machinery in motion 
or it will deteriorate. He must also keep his 
labor together. To accomplish these objects he 
often runs at a loss. 

Conditions are different where all the estab- 
lishments of an industry are under common con- 
trol. In the first place, the controlling parties 
know what all the mills are doing and know 
something about the extent of the demand. If 
certain grades and styles are overdone, they will 
quickly change to other fabrics or articles. 

Attention is here called to the fact that the 
farmer, by growing too much cotton, was pre- 
vented from growing the quantity of breadstuffs 
he needed. He suffered from two effects of 
that policy, one effect being the depression in 
the price of cotton and the other a corresponding 
scarcity of food and an increase of its price. 
There we see the cause of the situation described 
at the beginning of this chapter. 



12 FATE OF THE MIDDLE CLASSES 

PIG IRON 

In 1890 the production of pig iron increased 
from 7,603,642 to 9,202,703 tons and for two 
years remained considerably above that of 1889. 
The price, which was $18.40 in 1890, dropped 
to $17.52 in 1891, $15.75 in 1892, and $14.52 
in 1893. The average was about $2.50 per ton 
below that of 1890 and the difference on the pro- 
duction of the United States in these years 
amounted in round numbers to $60,000,000. 
To that extent the purchasing power of the iron 
makers was reduced. 

COAL 

The course of production and price in the bi- 
tuminous coal industry is a striking illustra- 
tion of the manner in Which the unregulated 
energies of production outdo themselves and 
work their own hurt. 

In 1880 and 1881 in good times the price of 
coal was $3.75. In those two years the produc- 
tion rose from 33 million to 48 million tons. 
Then the price dropped to $3.50. Production 
grew to 60 millions in 1883, 68 millions in 
1884, and 73 millions in 1885. The price 
dropped and kept on dropping. By 1886 it 
was $2.10. That year production dropped off 
12^ per cent., and with the revival of business 
the price bounded back to $3.45. 



THE MISFIT OF INDUSTRY 13 

This sensational rise in price had the same 
effect on mine operators that ten cent cot- 
ton has on planters. They pushed production 
to the limit of their ability, and the next year, 
1888, it went up to 79 millions. The price 
dropped from $3.45 to $2.60, where it remained 
for three years, held there by enormously in- 
creasing production, which eventually reduced 
it to $2.00 in 1895 and $1.60 in 1898. It did 
not get back to $2.50 until 1900. 

Between the price level of the prosperous year 

1887 and the average prices of the period from 

1888 to 1893, there was an average difference 
of 90 cents a ton, which on the average product 
amounted to about 500 million dollars. 

The tendency to over-production is increased 
by progress and invention. Every new labor- 
saving machine turns into the labor market a 
large number of workers liberated from their 
former drudgery and ready to compete with 
other laborers in new occupations of a kindred 
nature, where their experience will be of most 
value. 

This constantly augmented supply of labor, 
increasing the intensity of competition, is met 
by a constantly augmented supply of capital, 
ready to join it in new enterprises. As the 
rate of interest on old securities is constantly 
falling, there is every inducement to capital to 
seek new employment. 



14 FATE OF THE MIDDLE CLASSES 

The new enterprise, so set on foot by labor 
and capital released from other industries, is 
better equipped with up-to-date machinery than 
those which were built in preceding years, and 
other things being equal, has an advantage in 
economy of production. Thus the tendency is 
to make new competition constantly more for- 
midable to established enterprises. It becomes 
necessary for the manufacturer to charge off 
annually, in addition to the usual percentage 
for wear and tear of machinery and equipment, 
a percentage to meet the expense of the inevita- 
ble displacement of old machines with new ones 
of a better type, often before the machine has 
been much worn by use. The old loom can 
not compete with the automatic, self-tending 
loom, which reduces the labor cost so materially. 

So there is strong temptation to bring into 
existence more factories than the consumption 
will support. The new may do well, while the 
old run on at a loss rather than abandon the in- 
vestment. This increases surplus and demoral- 
izes the market. 

The ill-adjusted production by which so much 
of the world's energy has been wasted is the in- 
evitable result of the division of labor. 

The difference between the blind energy of 
numerous and widely separated competitors and 
the same units organized and combined for con- 



THE MISFIT OF INDUSTRY ^5 

certed action is the difference between a mob 
and an army. 

The effectiveness and economy of energy in 
the army is no greater than it is in the army 
of industry, which combines in a few compact 
organizations all the establishments of that line. 
For example, we have the army of iron and steel 
producers, composed of several great combina- 
tions which correspond to army corps. 

The early history of consolidated industries 
is not altogether peaceful. Their path is not 
strewn with roses. Until some kind of federa- 
tion takes place, destructive warfare is always 
a possibility for them. 

In proportion as the conflict of armies is more 
deadly and destructive than the incoherent out^ 
break of mobs, so the conflict of industrial com- 
binations is more destructive than ordinary com- 
petition. When the conflicts become inter- 
national, they will be embittered by national 
antipathies and sustained by governmental 
policy. 

The contemplation of industrial warfare un- 
der these conditions will tend to make less fre- 
quent such destructive conflicts. But when they 
do come the waste of wealth will be frightful, 
and will by its consequent suffering provoke 
such a protest from the toilers of the earth that 
eventually a truce will be declared. 

It is to that ultimate stage of industrial de- 



IQ FATE OF THE MIDDLE CLASSES 

velopment that we must look for the best results 
of consolidation, for when industrial warfare in 
nations has been succeeded by worse conflicts 
between them, and these in turn have given place 
to international co-operation, with a free and 
fair exchange of the best fruits of earth and the 
best products of toil, we shall have reached an 
era in which the murder of men by wholesale 
will be no longer tolerated and the unspeakable 
horrors of war will give place to generous emu- 
lation in the helpful works of industry. 

At present this great end seems very far 
in the future. The great combinations are at 
present, as a whole, unfit for the great office 
their successors are destined to perform for 
the human race. Overcapitalization, fraud, 
mismanagement, extortion, and oppression are 
so common among them that they do not enjoy 
or deserve the confidence of the consumer or 
the investing public. But time will cure these 
evils, and when the new machinery of produc- 
tion has been perfected by experience and ad- 
versity, the world will use it well — as well as 
it has used other machinery in the past. 



Chapter II 
THE LESSON OF THE CROPS 

Let us pay close attention where we find nature 
teaching by example. 

TN this spirit let us look at two of the great- 
* est facts in the world, corn and cotton. 

Very frequently it happens, as in the cotton 
industry, that large and small crops bring ap- 
proximately the same, and the extra outlay of 
energy and capital in making the large crop is 
entirely wasted. 

It was a common saying in the South that the 
world had just so much to pay for American cot- 
ton and the farmer got the same whether he pro- 
duced six, seven, or nine million bales. This, 
of course, is not an exact truth, for the consump- 
tion and the purchasing power of the world are 
constantly changing, and the price itself, to 
some extent affects the possible consumption. 
Nevertheless it is obvious that when the crop of 
1904, being about a third greater than the crop 
of 1903, brought actually a smaller aggregate 
sum, the world did not need the quantity tiiat 
was produced in 1904 and a large proportion of 
the labor and capital expended on its production 
was wasted. The same is true of the crop of 
1894. 



18 



FATE OF THE MIDDLE CLASSES 



First we will study the evidence of corn : 

CORN CROPS OF 25 YEARS. 





Crops in 


Value in 


Year 


Millions of 


Millions of 




Bnshels 


Dollars 


1880 


1,717 


679 


1881 


1,194 


759 


1882 


1,617 


783 


1883 


1,551 


658 


1884 


1,795 


640 


1885 


1,936 


635 


1886 


1,665 


610 


1887 


1,456 


646 


1888 


1,987 


677 


1889 


2,112 


597 


1890 


1,489 


754 


1891 


2,060 


836 


1892 


1,628 


642 


1893 


1,619 


591 


1894 


1,212 


554 


1895 


2,151 


544 


1896 


2,283 


491 


1897 


1,902 


501 


1898 


1,924 


552 


1899 


2,078 


629 


1900 


2,105 


751 


1901 


1,522 


921 


1902 


2,523 


1,017 


1903 


2,244 


952 


1904 


2,467 


1,087 



THE LESSON OF THE CROPS 19 

In the table on the foregoing page black type 
represents years of depression and light face 
type stands for periods of prosperity. By this 
arrangement we get a clear contrast of results 
to the farmer in good and bad years. In the 
twenty-five years there were two depressions 
and three eras of prosperity. 

The average annual return to the farmer for 
the corn crop during the years of prosperity 
was 740 millions in the first period, 701 in the 
second, and 893 in the third. 

Between these three periods came two series 
of lean years when the purchasing power of the 
country and the world was at a low stage. In 
those hard times the annual return to the farmer 
for his corn averaged 638 millions in the first 
and 539 millions in the last depression. 

The last twenty-two years of the table .were 
half and half, eleven good and eleven bad. In 
the eleven fat years the corn crop brought 8,857 
millions and in the eleven lean years, 6,422 
millions, with a yield only 12 per cent. less. 

The difference in the return to the farmers 
on this one crop, between the good and bad 
years of two decades was about two and a half 
billions, or enough to build homes for twelve 
million people. 

It is not a mere coincidence that the bad 
years came in series. They constituted periods 
of depression, and the crop did not bring as 



20 FATE OF THE MIDDLE CLASSES 

much as usual, because the people had less to 
buy with. 

The second fact brought out is that when the 
purchasing power of the country or the world 
remains nearly the same, the total crop brings 
not far from the same sum, whether the crop be 
large or small. 

If the whole product is half a billion bushels 
more than the world needs, the farmer will get 
no more by producing this surplus than he 
would without it. He has lost the labor and ex- 
pense of making the surplus. 

The same influences are seen in the cotton 
crop: 

COTTON CROPS OF 14 YEARS. 



Year 


Crops in 

Millions of 

Bales 


Value in 

Millions of 

Dollars 


1891 


9.03 


311 


1892 


6.70 


267 


1893 


7.54 


250 


1894 


9.47 


259 


1895 


7.16 


293 


1896 


8.53 


291 


1897 


10.89 


319 


1898 


11.18 


305 


1899 


9.14 


335 


1900 


10.40 


511 


1901 


10.66 


418 


1902 


10.72 


458 


1903 


10.50 


617 


1904 


13.55 


600 



THE LESSON OF THE CROPS 21 

Here we have nine bad years, followed by 
five good years, and a glance at the table shows 
that the farmers got almost exactly the same for 
five crops, amounting to 56 million bales, that 
they received for the nine crops, aggregating 
80 million bales, which they sold in the nine 
years of the hard times. 

In this crop as in the case of corn, there were 
boom years, when the purchasing power of the 
world was great and it took a large crop at a 
good price. In 1890, for instance, a record- 
breaking crop brought more money than had 
ever been received for cotton. Then came the 
lean years, from 1891 to 1898, when purchasing 
power was low and the country had fifty or a 
hundred millions less to spend for this product. 

It gave less for eleven million bales than it 
had given for something under nine millions. 

But the depression did not last always. The 
world once more became prosperous and by 1903 
it gave 617 millions for a crop no larger than it 
bought for half that sum in 1898. 

It is true mills and spindles increased, but 
what built the mills but the increase of purchas- 
ing power? 

In cotton as in corn, during periods of about 
the same purchasing power, the crop brings nQt 
far from the same sum, Whether it be large or 
small. For instance, the crop of 1903 brought 
617 millions and the big crop of 1904, although 



22 FATE OF THE MIDDLE GLASSES 

it was 35 per cent, larger, brought not quite as 
much. If it costs $30 a bale to make cotton, the 
farmer spent to produce the extra three-and-a- 
half million bales of the last crop about 105 
millions. If he had put this labor and expense 
into other crops he would have at least 105 mil- 
lions more. 

Here some one will ask whether the ten-mil- 
lion-bale crop of 1903 was not too small when 
the world's requirements were estimated at 
eleven millions. This is true and doubtless the 
curtailment of production can go too far, but we 
will deal with that question in its proper place. 
At present we are showing how production af- 
fects price and how the producer loses his labor 
and his money when he produces more than the 
world wants. 



Chapter III 

OEIGIN OF PANICS 
There are years like nightmares. 

COMMISSIONS composed of the ablest men 
in several countries have investigated the 
causes of industrial depression, and without ex- 
ception they have pointed to over-production. 

Some of them found other causes, but most 
of these are secondary, and are not sufficient 
in themselves to make so much trouble for so 
long a time. But with over-production upsetting 
business, the other causes operate more easily. 

While a very large crop or output sometimes 
brings more than a smaller one, even at a low 
price, it is still true that a reduction of the 
price approximately measures the amount by 
which purchasing power is reduced, for if the la- 
bor and capital were not in this particular indus- 
try they would be in others to swell the purchas- 
ing power there. For this reason the fairest com- 
parison is in the aggregate returns of all pro- 
ductive industries. That gives us the total re- 
wards of labor and capital in successive years. 
If the average level of prices on leading com- 
modities one year is 100 with a total product of 
fifteen billions value, and the next year the 
price level is 90, with approximately the same 



24 FATE OF THE MIDDLE CLASSES 

forces employed, we know that the purchasing 
power of the people engaged in those industries 
is reduced at least ten per cent. ; that is to say, 
at least one-and-a-half billions. 

But purchasing power is likely, indeed cer- 
tain, to be reduced in a greater ratio. For if 
the price of an article is 100 and the cost of 
production 80, the profit is 20; but if the price 
is 90 and the cost 80, the profit is 10. When 
price drops to 80 the profit is wiped out, and if 
the capitalist spends anything, it conies out of 
the accumulation of previous years. Thus, as 
the price level goes down, the income of the pro- 
ducing capitalist is reduced in geometrical ratio. 

When it is remembered that the capital in- 
vested in productive industry is largely in 
bonds, with fixed charges, the wiping out of 
profits is seen to be more destructive still, for 
default of interest is followed by foreclosures 
which destroy immense volumes of property. 

For similar reasons the purchasing power of 
the laboring class is reduced in greater ratio 
than the total shrinkage in prices would indi- 
cate, for prices are made and sales are made 
after factories are closed. An average fall of 
ten per cent, in the price level wipes out a very 
large part of the profits of industry, bankrupts 
many concerns, closes many factories, and 
throws thousands of men out of employment, 
because in a large proportion of industries it 



ORIGIN OF PANICS £5 

takes off all the profit ; but a further fall to the 
price level of 80 does immensely more harm, 
for the second ten units off the price represent, 
in most cases, the last vestige of profit and a part 
of the cost of production. Then industries go 
down like card houses and the ranks of the un- 
employed are swelled to the million mark. 

If it appear to any one that a reduction in the 
price of a commodity of general use may be an 
advantage to the consumer, even though a loss 
to the producer, and that the loss of purchasing 
power to one is gained by the other, let him re- 
member that it is impossible to weaken or im- 
poverish one class without weakening and im- 
poverishing society as a whole. Individuals may 
gain by the loss of others, but society as a whole 
loses. 

In order to see the situation with perfect clear- 
ness, let us remember that price is only a symp- 
tom or index with which we detect or measure 
the reality, and that reality is the relative sup- 
ply or deficiency of the commodity. If society 
as a whole has food enough, clothing enough, 
comfortable houses, and fuel enough, with the 
addition of as many comforts, educational fa- 
cilities, recreations and works of art, as its sur- 
plus labor can produce during reasonable hours, 
society has secured the best results from its pro- 
ductive machinery; but if it has so much corn 
that the grower uses it for fuel, so much coal 



26 FATE OF THE MIDDLE CLASSES 

that miners go hungry, and so much cotton that 
the farmer's family must go without meat, it 
is evident that the productive machinery is out 
of order and society as a whole is a great suf- 
ferer. The test of this logic is in the event, and 
we know that when the price index runs low 
the times are out of joint and the country is de- 
pressed, men go idle, and children cry for bread. 

The effect spreads from one industry to an- 
other until depression is general and business 
stagnates. At this point the destructive effect 
of over-production on purchasing power is fol- 
lowed by a psychological condition which adds 
to the general distress. A nervous dread of 
impending calamity turns depression into panic 
and the business world loses its head for the 
time. When that stage is reached suffering is 
indescribable and calculation falters in measur- 
ing trouble. There are years like nightmares 
when society, "sighing through all its works 
gives signs of woe." 

Dun's index figures indicate that on the bulk 
of commodities produced in this country there 
was an average decline of seven per cent, for 
three years, 1890, 1891 and 1892, below the 
level of 1888. This percentage on total prod- 
ucts amounting at normal prices to about forty- 
five billions in that period, means a reduction of 
more than three billions. 

It is a striking fact that the losses from 



ORIGIN OF PANICS 27 

shrinkage in prices are less before a panic than 
after it. The index figures which show a 
shrinkage of three billions on the products of 
three years preceding the panic of 1893 show 
five times as great a shrinkage in the long de- 
pression which intervened before the next period 
of prosperity. 

The evil grows slowly at first, but gradually 
extends from one industry to another, acceler- 
ating its progress, and finally culminates in a 
general depression. 

Panics usually occur when the depressing ef- 
fect of industrial stagnation is supplemented 
by some other disturbing cause which compli- 
cates the trouble, and as it were, "sets up in- 
flammation" in the public mind. 

Fluctuating prices are themselves an incen- 
tive to speculation and overtrading. Prosperous 
times also relax credits and loose credits are a 
source of danger when the critical moment 
comes. Added to these causes in producing 
the panic of 1893 was the monetary trouble 
following the coinage act of 1890. 

Much has been said in recent years about lack 
of confidence as the cause of depressions. This 
psychological trouble was attributed to the un- 
soundness of our monetary system, or to the 
free-silver agitation, but this was not the only 
cause. 

No one seems to have recognized the fact that 



28 FATE OF THE MIDDLE CLASSES 

falling prices are the most potent enemies of 
confidence. Every man runs from a falling 
market. Everybody wants to stand from under. 
ISTo one is in a hurry to buy until prices harden 
and show a tendency to rise. 

When to this are added other causes of un- 
easiness, such as unsound finance, crop failure, 
war, or strikes on a colossal scale, the evil is in- 
tensified. Then the sick man suffers from a 
complication of disorders and remedies are not 
easy to prescribe. 



Chapter IV 
THE EISE AND FALL OF PEIOES 

Over-production is a two-edged sword which at- 
tacks prices from two sides, reducing demand while 
it increases supply. 

IN" the previous chapter the loss to the pro- 
ducers of this country during the long de- 
pression preceding and following the panic of 
1893 was measured roughly by the average fall 
of prices during that period. The price level was 
taken as the best available barometer of the 
general prosperity or the general depression. 

There are those who contend that the rise and 
fall in the general level of prices is caused by 
expansion or contraction of the currency. They 
say that ^hen the volume of money in the 
country is increased, money becomes cheap and 
the prices of commodities go up in the same 
proportion. 

It is clear that cheap money makes high 
prices, but the truth of this statement as a 
general proposition may mislead us very far 
if we take inflation and contraction to be the 
only factors in price raising or lowering. The 
only safe method of procedure is to take a 
given period and see if the rule applies. 

In 1891 the volume of money circulating in 
this country was 1,497 millions. It gradually 



30 FATE OF THE MIDDLE CLASSES 

increased with population, and in 1897 was 
1,640 millions. The money supply, in pro- 
portion to the number of people and the 
business they did was about the same in these 
two years. Yet the average level of prices, as 
shown by Dun's index, which is based on the 
prices of several hundred staple articles taken 
in proportion to consumption, fell from .98 to 
.72. Without any relative expansion or contrac- 
tion of the currency, there was an average fall 
of 26 per cent, in the general level of prices. 
Evidently inflation or contraction will not ac- 
count for this. 

The two main causes were the cumulative 
effect of over-production for several years pre- 
ceding the panic, and the contraction of credit 
due to the belief that the monetary situation 
was made unsafe by the coinage of silver and 
the loss of gold by the Treasury. 

Taking another period, from July, 1897, to 
January, 1902, the price level, according to 
Dun's index, rose from .72 to 101, an advance 
of forty per cent. During the same period the 
volume of the currency increased from 1,640 
millions to 2,249 millions. The inflationists 
jump to the conclusion that this increase of 
money accounts for the rise in the price level, 
and the large increase in the gold product has 
given many people a vague idea of cheap money 
and high prices. 



THE RISE AND FALL OF PRICE 8 31 

The fact is that with all this increase in the 
stock of money, we have relatively less in pro- 
portion to business done. We have more dol- 
lars than ever before, but we work them harder. 
Manufactures, trade and all kinds of industry 
have increased at a tremendous rate. While 
the volume of money increased 37 per cent, in 
those five years, the volume of business grew 
113 per cent. The ratio of money to clearings 
in 1902 was one to fifty-one, where it had been 
one to thirty-three in 1897. Where a dollar 
turned over thirty-three times then, it had to 
turn over fifty-one times in 1902 in order to do 
the business of the country. 

Under these circumstances a forty per cent, 
advance in the price level can not be accounted 
for by expansion of the currency. 

That idea is untenable in the face of the 
alternate rise and fall of prices since 1902, 
while the volume of money was steadily and 
rapidly increasing. For example, there was a 
decline of six per cent, in four months from 
March 1 to July 1, 1904, while the money in 
circulation increased 100 millions. Inflation 
could not possibly account for that. 

This incident calls our attention to the in- 
fluence of seasons on the level of prices. Dairy 
and garden products, which constitute about one- 
seventh of the value covered by the price index, 
are cheap in summer time. The six per cent. 



32 FATE OF THE MIDDLE CLASSES 

fall in the price index between March 1 and 
July 1, 1904, is largely accounted for by the 
sharp decline in this group of products. They 
advanced by autumn and on December 1, 1904, 
the price level again stood at 100. So much 
for the influence of seasons on the level of 
prices. 

Even these small changes due to seasonal in- 
fluences are the result of increase or decrease in 
the supply or the demand. Dairy and garden 
products are cheaper in summer because the 
supply increases with the abundance of grass 
and food. We have our summer gardens which 
disappear in winter. The cow gives more milk 
at less expense in the season of abundant grasses 
and the hens lay better in warm weather than 
in winter. 

Close examination will show that the same 
cause runs through the whole list. The price 
level is based on several hundred articles in 
general use. If the price of one goes down, the 
average is affected very little. If a dozen or so 
are depressed, the effect on the average is per- 
ceptible, and if a hundred or more of the prices 
are sharply reduced, the result is a very low 
average. This very low average is the result of 
an oversupply in many articles. This over- 
supply may be relative, and may be due to low 
consumption, because of poverty or lack of pros- 
perity in the consumers. Thus we see the funda- 



THE RISE AND FALL OF PRICE 8 33 

mental cause of a low price level is over-produc- 
tion, extending to a considerable proportion of 
the staple products, and bringing down others 
by cutting off consumption. This cut-off of 
consumption comes as prices go down. The 
man who receives little can spend little. Smith, 
with $1,000 income in a bad year, is only half 
the consumer he was with $2,000 income in a 
good year. Thus we see over-production is a 
two-edged sword; it attacks the price from two 
sides, reducing demand while it increases sup- 

Professor John R. Commons, in his testimony 
before the United States Industrial Commis- 
sion, exhibited a chart, giving the range of 
prices and the number of unemployed persons in 
successive years. He showed conclusively that 
the years of low prices are the years in which 
the evil of unemployment is at its worst. 



34 FATE OF THE MIDDLE CLASSES 



Chapter V 

THE BOOM AND SLUMP OF STOCKS 

The rise or fall of anything that is constantly 
used as bank collateral is a matter of vital import- 
ance to the "business world. 

The extent of the danger from this source is in- 
dicated by the fact that in a time of stress a few bank- 
ers in New York formed a pool of fifty million dollars 
to support the stock market. 

OVEK-PKODUCTION is an immense fac- 
tor in finance, and is the cause which 
oftenest turns industrial depression into panic. 

The periodic rise and fall in the level of 
prices for staple commodities has its counter- 
part in the ground-swell and the slump of prices 
in the stock market, but the fluctuations there 
are wider and more disastrous because of con- 
ditions peculiar to stocks. 

The rise and fall of stocks is greater than 
the periodic cadence in the prices of commodi- 
ties because stocks, in addition to being affected 
by supply and demand or the general purchas- 
ing power of the country, which affect all values, 
are also sensible to other influences arising from 
the nature of corporate property. A bushel of 
wheat remains a bushel of wheat, even in the 
hands of a receiver; likewise a bale of cotton. 
Not so a corporation. The passing of a divi- 



THE BOOM AND SLUMP OF STOCKS 35 

dend, decreased earnings, quarrels among stock- 
holders, allegations of fraud or mismanagement, 
and applications for receivers have tremendous 
effect upon the market value of stock, even 
though the physical condition of the company's 
plant remains unimpaired. Other and opposite 
influences operate just as strongly to bull the 
stock. 

When in the stock market the fundamental 
forces of supply and demand, prosperity and 
depression, are reinforced by the influences 
peculiar to corporate property, it is not sur- 
prising that the alternate boom and slump of 
stock very far exceeds the periodic rise and fall 
of the price level of commodities. The greatest 
fall in the average price of commodities in re- 
cent years was 26 per cent, between January 1, 
1891 and July 1, 1897. This is small in com- 
parison to the ground swell of the stock market 
in 1901 and the slump in 1903. Standard rail- 
way stocks went down thirty to forty per cent, 
and the fall of industrials was nearly twice as 
great. The decline of the common and pre- 
ferred stocks of the ITnited States Steel corpora- 
tion amounted to 470 millions, or about 60 per 
cent, of their market value in 1901. During 
this period the variation in the commodity price 
level never exceeded six per cent. 

The main causes of this depression in the 
stock market were the great volume of industrial 



36 FATE OF THE MIDDLE CLASSES 

stocks thrown on the market, the suspicions 
character of very much of this new supply of 
securities, and the forced liquidation on an im- 
mense scale among speculators. It was the cul- 
mination of an era of combination and over- 
capitalization and billions of new stocks were 
offered for sale. It was clear that the combined 
properties had been tremendously over-capital- 
ized, and it was not long before the allegations 
of fraud and the application for a receiver for 
the ship-building trust led to an exposure of 
financial methods which were alarming to the 
investor. This incident put the whole list of 
industrials under suspicion because some of the 
men concerned in the ship-building trust were 
active in promoting many other new combina- 
tions. Thus the market was glutted with stocks 
of doubtful value. 

The immense expansion of credit and over- 
trading in stocks alarmed conservative men and 
a sudden check on business was applied by the 
discovery of over-production in iron and steel. 
But the over-production of industry was not as 
great as the over-supply of stocks. 

Over-production has far-reaching conse- 
quences in the manufacture of securities, as 
well as in the products of labor. To realize this 
we have only to observe the operations of the 
banks. 

A large part of the total volume of business is 



THE BOOM AND SLUMP OF STOCKS 37 

made up of sales of stocks and bonds. A great 
deal of money or credit is needed for this pur- 
pose and the facilities of banks are freely used 
by traders in securities. At certain times this 
demand for money is so great that the impor- 
tant functions of the banks in supplying funds 
to move the crops or meeting the demands of 
manufacturers and merchants are seriously in- 
terfered with. This, however, is not the most 
serious effect of the stock market upon busi- 
ness. 

The banks accept stocks as collateral for loans, 
and to protect themselves agaixist loss by shrink- 
age of prices, they have devised a system for 
daily revision of the valuations put upon the 
securities so held. As some margin above the 
market price of collateral is required, a close 
watch on quotations will enable the bank to pro- 
tect itself in ordinary times by calling on the 
borrower to make good the depreciation of his 
collateral. But there are times out of the ordi- 
nary when the fluctuation of stocks is so rapid 
that collateral shrinks below the size of the loan 
before it can be sold or replaced, and if the bor- 
rower is hard hit, as he usually is, the bank may 
have to lose the difference. Every few years 
we hear of the failure of a bank from this cause. 

In times of stress a serious change takes place 
in the attitude of banks carrying stock loans in 
large amounts. They are forced in self-defense 



38 FATE OF THE MIDDLE CLASSES 

to bolster up the stock market. During the 
stock panic of May, 1901, it was published by 
the associated press that certain New York 
banking houses formed on short notice a pool of 
fifty million dollars to support the market. This 
statement was never publicly questioned and is 
doubtless correct. That being true, it would 
be desirable to know whose money constituted 
the sum which was to be so risked. 

Some of our greatest banks at times put 
themselves in a position where they are almost 
compelled to bet against the market. This 
turns into a speculative concern the very institu- 
tion upon which the public leans as a pillar of 
safety. It might be said that but for such pools 
in dangerous times, the market would go to 
pieces and the slump of stocks would carry 
everything down with it. The cure is more 
dangerous than the disease. If the banks bet 
fifty millions on the market and it went against 
them the disaster would be far worse than it 
would have been if they had kept hands off. 

The banks accept stock as collateral because it 
is a kind of security upon which they can 
quickly realize, and if it has solid value that will 
resist the pressure of the market, there is no 
reason why it should not be so used. But we 
have recently been through a period when some 
of our strongest banks turned promoter and 
headed underwriting syndicates which put upon 



THE BOOM AND SLUMP OF STOCKS 39 

the market immense quantities of watered 
stock. When the reaction came there was a 
period of forced liquidation and the slump in 
the prices of industrial stocks was so great that 
their total market value contracted about two 
billions. 

In the market at the same time were the 
more or less solid railroad stocks. The strin- 
gency caused by the collapse of the boom in in- 
dustrial stocks operated like hydraulic pressure 
on railway stocks, which had more solidity and 
resistance, but nevertheless suffered deprecia- 
tion which on their immense volume amounted 
to something like a billion dollars. 

On September 9, 1903, the national banks of 
the United States had 3,481 millions of loans, 
of which 1,372 millions were secured by stocks 
and bonds. In other words, forty per cent, of 
the basis of credit was exclusively composed of 
these securities. 

Of the other sixty per cent, loaned on the 
notes of individuals, firms and corporations, a 
large part rested on resources composed of cor- 
poration shares. Including this item, at least 
half the basis of credit consisted of stocks and 
bonds. 

Within a short time there was a shrinkage of 
one-third or more in the value of this base of 
credit, and again later it expanded to nearly its 
former proportions. 



40 FATE OF THE MIDDLE GLASSES 

It is insisted that the money which we use 
as a medium of exchange shall have a stable 
value, but little attention seems to have been 
paid to the fact that bank credit, which is the 
real medium of exchange in nine cases out of 
ten, has a basis of value so unstable that it has 
shrunk and expanded more than a third in 
four years. 

What constitutes the volume of stocks on the 
market ? It is made up partly of solid material, 
but very largely of watered shares that may be 
compared to a gigantic sponge, alternately ex- 
panding and contracting as the market goes up 
or down. 

This great sponge is part of the foundation 
of our system of credit. When it expands, loans 
expand ; when it contracts, loans are called and 
money is stringent. We have then, instead of 
flexible currency, a flexible credit founded on a 
flexible base, largely made of sponge. 

We know what happened to the man whose 
house was founded on a rock, and the poor fool 
whose house was founded on sand. Sponge is 
still worse than sand. 

The development of industry requires the 
formation of corporations and it is right and 
necessary that incorporated business have bank- 
ing facilities as far as it is entitled to credit, but 
the conditions just described are a menace to 
all the substantial interests of this country. 



THE BOOM AND SLUMP OF STOCKS 41 

There are many demands for reform in cor- 
porations, but the most urgent are measures to 
prevent banks and insurance companies from 
using the funds of depositors and policyholders 
to float schemes for the profit of syndicates com- 
posed of the men who control these institutions 
of trust. 

Their flotation of watered stock not only 
makes inevitable the loss of billions of money to 
the investing public by the alternate inflation 
and expansion of the market, but at the same 
time puts the whole business world in peril 
through the sapping of the foundation of credit. 

The very banks which back the promoters of 
watered-stock companies are in a short time 
compelled to call loans and force the liquidation 
that sends prices down. The very machinery 
upon which credit depends is used to destroy it. 
No doubt the calling of loans and the forcing of 
liquidation furnish an heroic but indispensable 
remedy for a bad situation, but the banks which 
help to create the situation deserve the severest 
condemnation. 

These remarks are, of course, not intended 
to apply to the great majority of bankers who do 
a conservative, legitimate business and have not 
suffered themselves to be used by promoters or 
stock-jobbers. They, more than any other class, 
will appreciate the truth and the importance of 
what has been said on this subject. The trouble 



42 FATE OF THE MIDDLE CLASSES 

is mainly in Wall Street and a few other centers 
of speculation. 

It is true there is legitimate work for the 
promoter. With all his faults, he built our 
railways and many of the great industrial 
plants, but society has a right to prevent him 
from injecting into the body politic a poison 
that will bring on fever and delirium as surely 
as the bite of an infected mosquito brings on 
the yellow plague. 

Heretofore the promotion of stock companies, 
particularly mergers, has been a lucrative busi- 
ness and some of the greatest banking houses in 
this country have engaged in it on an immense 
scale. This gave the business a prestige and 
respectability which it never had before. Men 
of no reputation thought that if Mr. J. P. Mor- 
gan could promote a billion dollar company 
based on property worth half that sum, they 
could afford to promote smaller companies that 
were over-capitalized in like proportion. 

!No doubt Mr. Morgan thought it was right to 
over-capitalize if the preferred stock approxi- 
mately represented the value of the property 
before combination and the public was given to 
understand that the value of common stock 
rested solely on the prospective appreciation of 
the property through increased economy and 
larger earnings resulting from consolidation. 

This seems plausible and most big corpora- 



THE BOOM AND SLUMP OF STOCKS 43 

tions are organized on that basis. The pro- 
moters argue that property is valuable in pro- 
portion to its earning power, and the price may 
be either above or below the par value of the 
stock, according to the success of the enterprise. 

The answer is that the vital matter, so far as 
the investor and the public are concerned, is 
stability. The large nominal capital is not so 
much the trouble; it is the instability of the 
material so created. The harm is done by the 
alternate expansion and contraction of stocks. 
This is worst in companies organized on a 
speculative basis. Investment stocks do not 
tempt the big gambler with so heavy a stake, 
and being more solid, offer greater resistance 
to his onslaught. Consequently it is the im- 
mense mass of speculative stocks that consti- 
tutes the danger to the business world. 

The influence of a great name for good or 
evil is immense and the whole country lost its 
head when a banker whose name had been the 
synonym for conservatism and stability took the 
lead in the wildest carnival of promotion and 
inflation that the country had ever seen. It is 
to the everlasting credit of Eussell Sage that he 
saw through all that folly and had the moral 
courage to raise his voice in warning. Even 
then there were not lacking men of great pres- 
tige who railed at Mr. Sage as an old fogy, but 
the logic of events speedily justified all he had 



44 FATE OF THE MIDDLE CLASSES 

said. The slump in the stock of a single cor- 
poration was nearly half a billion within three 
years, although it was underwritten, financed 
and controlled by the most powerful houses in 
New York. 



Chapter VI 

IMPERATIVE NEED OF ECONOMY IN 
PRODUCTION 

The world's comfort demands the work of all 
hands without war or waste. 

IT may be safely assumed that the world's com- 
fort demands the work of all hands without 
war or waste. It is still true that for the vast 
majority, life is a struggle for existence with 
no higher stake than a bare living. For them 
there is little opportunity for the development 
of body or mind beyond that afforded by the 
routine of their narrow lives. Even if we leave 
out all such considerations, the mere bodily 
comfort of the race demands all it produces, and 
if everybody is to have enough, economy must 
be practiced more consistently than it is now. 

But what of the future ? Will the progress 
of science, invention and the arts enable every 
one to produce what he needs with a part of his 
day's work ? 

Confining our calculations to the Continental 
United States, if we leave immigration out of 
the account, and apply the rate of increase re- 
corded by densely populated Germany during 
the last decade of the nineteenth century, which 
was sixteen per cent., we shall have a popula- 



46 FATE OF THE MIDDLE CLASSES 

tion of five hundred millions in this country in 
112 years. If we apply the rate of increase in 
the Ujnited States during the last decade, we 
shall have the half -billion at the end of a cen- 
tury. 

On two million square miles of arable land 
this will give us a density of 250 per mile, which 
is about the density of Germany. No civilized 
country with a population so thick as that has 
been able to feed its people with the products 
of its own soil. China is the only country with 
so dense a population which manages to subsist 
on its own products and its people live in a man- 
ner that is not pleasant to contemplate. 

The productive methods of our own country 
would have to be vastly improved in order to 
sustain so great a population. Theoretically, 
scientific agriculture has done a great deal to 
increase the productiveness of the soil, but the 
actual progress made by this generation of 
farmers in the average yield per acre of such 
staples as corn, wheat and cotton is very small. 
The Department of Agriculture publishes in 
one of its year books, a table showing the aver- 
age yield of these articles for the period from 
1865 to 1899 and the percentages of increase 
are surprisingly small, especially in corn and 
wheat. 

Of the arable lands in this country, about two- 
thirds are under cultivation and only one-third 



NEED OF ECONOMY IN PRODUCTION 47 

remains unproductive. By present methods we 
feed our people with the products of this land 
and have one-fifth of our food crops for export. 
By using the idle third of the arable land and 
exporting none of the food crops, we would pro- 
duce, at the same rate, enough food for 144 mil- 
lion people. At the end of a century we may 
expect 500 millions. Necessarily we must pro- 
duce more than three times as much per acre 
in order to feed the people as well as they are 
fed now, and grow the same proportion of other 
crops for other purposes. 

But the wants of society increase all the time. 
The denser the population the more social ma- 
chinery is required to keep it comfortable and 
orderly. 

The world was living without railroads eighty 
years ago and its grain was cultivated with old- 
fashioned plows, reaped with the sickle and 
threshed with the flail. 

Now it would be impossible to get enough men 
and teams on the roads to move the vast traffic 
that goes by rail, and if it were possible, the 
work would require all the able-bodied men and 
more horses or mules than the country could 
feed, leaving neither man nor beast to till the 
soil or run the factories. 

David A. Wells is authority for the statement 
that if the corn-sheller were abolished, it would 
take the entire agricultural population of the 



48 FATE OF THE MIDDLE CLASSES 

principal Corn States 110 days in the year to 
shell the corn they produce. 

It is manifestly impossible for us to maintain 
our twentieth-century civilization on the meth- 
ods of production that were in vogue eighty 
years ago and it will be equally impossible for 
the grandchildren of this generation to exist 
with equal comfort in their time unless their 
methods are vastly better than ours. 

Either the methods of production will greatly 
improve, or population will stop growing or the 
world, especially the civilized part of it, will 
suffer as never before. 

It is not pleasant to contemplate the condi- 
tion of society when population becomes sta- 
tionary. There are many theories as to what 
would happen, but the actual condition in those 
countries where this point has been reached is 
not reassuring. 

It is hardly more satisfactory to look forward 
to a time when the civilized world will be re- 
duced to the meager allowance that the China- 
man enjoys. 

Disagreeable as both alternatives are, noth- 
ing is more certain than that one or the other 
of them will confront our descendants if vast 
improvement has not been made in the methods 
of production and distribution by that time. If 
our country, now the world's best granary, shall 
have to buy food a hundred years hence, it will 



NEED OF ECONOMY IN PRODUCTION 49 

have to produce the commodities with which to 
buy, if indeed there shall be any other granary 
open to us in that period, when the demands 
of Europe for food will have been vastly in- 
creased and its hungry billions will be ransack- 
ing the earth for a supply. Already they have 
pre-empted Africa. Whether we buy or grow 
our food, it will be production of one kind or 
another that will feed us. 

It is perhaps pertinent to ask why we should 
bother our heads about the future. Certainly 
we have evil enough for our day, but a glance 
ahead will show the direction in which we are 
tending and will make plain some of the changes 
which industry is undergoing in unconscious 
anticipation of the future. 

To this end the world is working in all the 
vast and wonderful mechanism that is growing 
up in industry. Those who make combinations 
do so for self-preservation or profit, or some 
other advantage, not caring particularly for the 
remote future, but when they have made this ma- 
chinery others who come after them carry it a 
step further, and so the world's progress is made, 
step by step, each generation unconsciously pre- 
paring for the next machinery or capital or a 
fund of knowledge, which in that later time will 
be absolutely necessary to existence. 

It is not difficult to see the course of improve- 
ment in agriculture. In this great industry 



50 FATE OF THE MIDDLE CLASSES 

science is far ahead of its practical application. 
The tiller of the soil has hardly scratched the 
surface of its possibilities and the way to im- 
provement is clear. It is different in manufac- 
turing and transportation. Here so much has 
been done that it is hard to see what course fur- 
ther development will take. 

Invention will no doubt continue to improve 
apparatus but for the greatest results we must 
look to a new and unworked field. 

Indications of the direction in which this new 
field lies will be found in the characteristic ten- 
dency of all business toward the utilization of 
waste. During the past quarter of a century 
by-products have been studied and utilized as 
never before. Every great corporation that has 
become a landmark in its particular industry, 
boasts of important economies effected in the 
production of some useful article. By-products 
which were overlooked thirty years ago consti- 
tute hundreds of millions of the output of the 
factories. 

!Now a new and larger form of economy is 
demanded, which will save the enormous waste, 
not of one product, or group of products, merely, 
but of all products which are created to be 
thrown away or sold at sacrifices so great that 
the producer is crippled and his purchasing 
power reduced by the loss of time spent on un- 
profitable industry. 



NEED OF ECONOMY IN PRODUCTION 51 

Great as the saving through the utilization 
of by-products has been, it is small in compari- 
son with the saving that will be effected in all 
lines of industry when production is so regu- 
lated that it will approximately meet consump- 
tion at prices which will afford a living wage 
and a fair profit. 



52 FATE OF THE MIDDLE CLASSES 



Chapter VII 

REGULATION OF PRODUCTION 

When we learn to regulate production, labor will 
have a living wage and capital will have a fair profit. 

WE have seen that the division of labor set 
thousands of people to work on the same 
task and no considerable part of them know what 
the rest are doing. They all work in the dark as 
regards supply and demand. They only know 
there is a surplus when there is a glut in the 
market and prices begin to go down. Then it 
is too late to prevent the consequences. 

Now observe the effects of surplus. When 
the world's supply of cotton is a million bales 
above the estimated requirements, the price 
goes down. When the surplus is two million 
bales, the fall in price is more than twice the 
fall for one million. 

Observe also that the depression does not af- 
fect the surplus merely. It affects the price 
of all cotton on the market. The whole crop, 
including the surplus, brings less than a normal 
crop. 

The consequences of this disparity between 
the ratio of surplus and the ratio of price are 
very serious, especially since surplus affects all 
producers, the prudent as well as the imprudent. 



REGULATION OF PRODUCTION 53 

Attempts are frequently made by cotton plant- 
ers to regulate production, and in the year 1899 
they came nearer succeeding than they ever did 
before. Influential farmers used their utmost 
efforts to keep the others from making a surplus 
crop, and when the crop was maturing, they 
strenuously exerted themselves to prevent the 
hasty marketing of cotton. The banks lent 
their assistance and cotton was held back on the 
farm to a considerable extent. The result was 
that the price went up to eleven cents per pound 
for a short time and much of the crop was sold 
for ten. In 1905 the cotton planters organized 
with cotton at 6 }4 to 7^ cents and curtailed 
production. As a result the price went up to 
ten cents before the crop was all marketed. 

This is an example of regulation by co-oper- 
ation. The cotton mills have given us similar 
examples. Time and time again they have 
agreed to limit production in order to prevent 
a surplus. The same has been done with lum- 
ber, iron, nails, stoves, and a variety of other 
commodities. The cotton planters have a much 
harder task because they have to control mil- 
lions of producers in order to regulate the sup- 
ply, but their success in this difficult field shows 
what organization will do to solve this great 
problem. The farmers have one great advan- 
tage in the comprehensive statistics Which are 
collected by governmental and other agencies 



54 FATE OF THE MIDDLE CLASSES 

to show the acreage, condition and yield of the 
crop. 

In adjusting production to consumption, the 
primitive family, crude as its methods were, 
had one great advantage. The demand was 
known and the supply could be controlled. The 
patriarch knew how many sheep and oxen and 
how many measures of grain the family re- 
quired. He also knew how many skins and 
how much wool would be needed for clothing 
and what materials for sandals. The produ- 
cers were entirely under his control and he could 
apportion their tasks so as to meet the demand 
for the necessities of life. If the man making 
sandals got through his task first, he could be 
sent to help his brother finish dressing skins, or 
assist in herding cattle or cultivating grain. If, 
with our improved methods, we could adjust 
supply to consumption as closely as the patriarch 
did we would save an immense amount of labor 
and loss. 

The modern family of industry is widely 
scattered. Being separated, it does not co-op- 
erate, except in a blind, unconscious way. A 
hundred little factories can not co-operate eas- 
ily, but when a whole industry is organized in 
a few combinations, the possibility of co-opera- 
tion is increased a hundredfold. 

It seemed a hopeless task to control the acre- 
age of the cotton crop when the planters were 



REGULATION OF PRODUCTION 55 

several millions strong, and their weakness for 
disregarding resolutions had come to be re- 
garded as a fixed habit which nothing but a 
change in human nature could break up. In 
addition to these difficulties they were unorgan- 
ized. 

But the farmers had the determination born 
of desperation, and they organized the Southern 
Cotton Association which controlled the acreage 
very largely in 1905 and restored the price. 

Another example of co-operation favored 
by organization is worth mentioning here. 
Railroad rate wars are fewer and less 
disastrous than they were a decade ago, in 
spite of the fact that the law prohibits even an 
agreement to maintain rates. It is because the 
railways have been consolidated into a few sys- 
tems, and through several of these there runs a 
thread of common ownership. The same method 
applies as readily in manufacturing. 

When a few concerns control the production 
of an article or a series of articles, it is easy to 
ascertain the total capacity and the probable 
production. It is also easy to find approxi- 
mately what the requirements of the market will 
be. Half a dozen concerns, when they are in the 
humor to co-operate, can add up last year's sales 
and find a safe basis of calculation for this year's 
demand, which will be the same, plus the natural 
increase, increased or diminished by new factors 



56 FATE OF THE MIDDLE CLASSES 

affecting the purchasing power or the wants of 
society. These factors can be estimated pretty 
well by experienced judges, and when applied 
to last year's sales, will give a fair estimate of 
this year's demand. 

When this point has been reached, the next 
step is to adjust production to consumption, 
supply to demand. This has been done in a 
number of cases, and the tendency is to extend 
the process until it includes all the important 
industries. 

The public views this tendency with alarm. 
The natural supposition is that a curtailment or 
even a limitation of production means extortion 
through advancing prices. In some cases it 
does, but not in all. In periods of depression 
prices go so low that they do not yield a living 
wage and a fair return to capital. There are 
three parties to the price question, the capitalist, 
the wage-earner, and the consumer, and each 
must be considered in any fair adjustment. 
When prices are so low that they do not yield a 
living wage and a fair return to capital, they 
ought to be raised. If the only way to raise 
prices to a living scale is to regulate production, 
it ought to be regulated. There is no wrong in 
regulation itself. The right or wrong depends 
on the fairness or unfairness with which the 
task is done. 

Those who look with abhorrence on the con- 



REGULATION OF PRODUCTION 57 

trol of production by the producers should stop 
and consider what happens now. Another kind 
of control is exercised. Production is checked 
and effectually checked by the surplus, but this 
check does not operate until a condition has 
been reached from which there is no escape with- 
out suffering and loss. It devolves on the com- 
mon sense of mankind to decide whether it is 
better to control production in time to prevent 
this suffering and loss or await the tardy check 
of the surplus and submit to the inevitable dis- 
asters that follow in its train. 

Let us look into the merits of regulation a 
little further. A builder who has a contract to 
erect a house does not build a second because 
he made money on the first. He had a demand 
for one house of that kind and he built just one. 
If he pursued any other course he would lose 
money and would deserve to lose it. No one 
criticises him because he regulates his produc- 
tion of houses according to the demand he has, 
but he would be severely criticised if he failed 
to do so. 

Why is it less proper for a factory to limit 
its production to the number of shoes or coats 
it has a demand for ? Is there any moral dif- 
ference between the production of the house 
that shelters a man and the making of the 
clothes he wears or the bread he eats ? 

Why should the farmer be blamed for trying 



58 FATE OF THE MIDDLE CLASSES 

to grow no more wheat or corn or cotton than 
the world will take at a fair price ? And if the 
farmer does this or tries to do it, why should he 
blame the manufacturer for trying to do the 
same thing with his product? If the farmer 
does it by organization, why should not the man- 
ufacturer use the same method ? 

Some people think there is no health in the 
body politic unless the producers break their 
necks trying to outdo each other. Unfortu- 
nately this happens much of the time and be- 
cause they see it so often some think it is nec- 
essary for the good of the country. They imag- 
ine that when the market is glutted and goods 
are sold for a song the public profits by the loss 
of the producer, but sooner or later the depres- 
sion reaches a point when those who gloated 
over cheap goods find their business demoral- 
ized, profits gone and sometimes the occupa- 
tion with it. Steady employment depends on 
prices which will afford a living wage and a 
fair return to capital. On steady employment 
depend the purchasing power of the masses and 
profitable business for all classes. 

There is no class whose interest does not de- 
mand that fair prices be paid for every article 
the country produces, and that a fair wage be 
paid to every man who does an honest day's 
work. These things, vital as they are to the 
welfare of all, can not continue in the face of 



REGULATION OF PRODUCTION 59 

over-production, and will only be enjoyed pe- 
riodically, with long, heart-breaking years of de- 
pression between the good years, until the world 
learns how to regulate production and stop the 
waste of surplus. 

Many lessons will have to be learned from the 
costly teaching of experience before co-operative 
regulation of production will be a success, and 
its failures in recent years have led some to 
think that regulation is impossible. But while 
wise men are wagging their heads and explain- 
ing how regulation is contrary to the law of sup- 
ply and demand, the efforts at regulation go 
right on, because they are forced by an unseen 
law which compels a closer adjustment of sup- 
ply to demand. 

The chief cause of failure so far seems to 
be found in the fact that an attempt has been 
made to control prices without regulating pro- 
duction. This reverses the order of nature and 
brings the efforts at regulation into direct con- 
flict with the law of supply and demand. The 
inevitable result is disaster. 

If, instead of flying in the face of well-estab- 
lished principles an earnest effort had been 
made to measure the demand and fairly adjust 
the supply to it, results would have been more 
satisfactory. An important object lesson is 
found in the steel rail pool's agreement to main- 



60 FATE OF THE MIDDLE CLASSES 

tain a uniform price of $28 per ton for several 
years. 

Concerning the policy of the steel corporation 
and its effect, Mr. J. C. Boyles, writing for the 
New York Times, said in January, 1902 : 

"In the opinion of the writer the satisfac- 
tory conditions existing at the close of 1901 
and the beginning of 1902 and the confidence 
with which their continuance for at least an- 
other year may be predicted are chiefly, if not 
wholly, due to the fact that the United States 
Steel Corporation has held a firm hand on the 
throttle valve and discouraged all schemes to 
bring about a "boom" in the markets which, if 
not controlled by it, are at least influenced ir- 
resistibly by the policy of the management of 
that corporation. There has been some criti- 
cism of this policy among producers, who regard 
it as an arbitrary interference with the natural 
course of trade to hold prices steady when all 
the productive capacity of the country is run 
to the breaking point and those wanting ma- 
terial would in many instances gladly pay more 
than the market price to get it quickly. This 
criticism would be warranted if long experience 
had not shown that the tendency of such 
conditions as those which exist at the moment is 
to rush prices to a level at which consumption is 
sharply curtailed, and that the resulting reac- 
tion is disastrous to every interest involved. 



REGULATION OF PRODUCTION Q± 

"But for the sustaining and restraining influ- 
ences at work through 1901 we should now be 
witnessing the exciting incidents of the wildest 
boom in iron and steel the country has ever 
known. Prices would be what manufacturers 
could get, which in every case would be ma- 
terially more than are now demanded, materials 
would advance all along the line, labor would be 
restless and discontented, and the only prognosis 
possible for 1902 would be imminent collapse 
and disaster. It was the expectation that ex- 
actly this would happen which led so many ex- 
perienced iron masters at the beginning of 1901 
to predict that the year would end in depression. 
A condition of business which as far as possible 
is satisfactory to both makers and consumers, 
which makes business profitable all along the 
line, and warrants the planning of undertakings 
involving a large consumption extending far 
into the future, is without precedent in the his- 
tory of this great industry, and shows that wiser 
and more powerful influences are at work to 
hold it on even keel than ever before. That 
this policy involves no great sacrifice for the 
manufacturers may be inferred from the fact 
that the net earnings of the United States Steel 
Corporation are understood to average $10,- 
000,000 per month, with nothing in sight to 
suggest that this will not continue through 
1902." 



62 FATE OF THE MIDDLE CLASSES 

Since the foregoing extract appeared in print, 
events have furnished their own comment on 
the effects of the policy described by Mr. Boyles. 
In the summer of 1903 production was checked 
by a great decrease in the demand for products 
of the steel works. Profits shrank, and the 
United States Steel Corporation, which had 
been reported as earning ten millions net per 
month, was constrained to pass the dividend it 
had been paying on its common stock. This 
stock, in the month of listing on the New York 
Stock Exchange in 1901, sold for 44^ and in 
April of that year brought 55. In May 1904, 
it was sold for 9, and the preferred, which sold 
on listing at 94^>, and in April, 1901, at 
101 Ji y went for 53. Thus the common and 
preferred stocks, which the market had valued 
at 787 millions, were, by the same arbiter, ap- 
praised at 315 millions three years later. 

Still the price of $28 per ton for steel rails 
was maintained in the United States, but Amer- 
ican rails were sold much lower in Canada, with 
the result that the Canadian railways had an 
important advantage over American railways 
on an article produced in the United States. 
The Canadian railways could afford to put in 
betterments, while those of this country cur- 
tailed orders for rolling stock. 

Thus it is made clear, that, while in prosper- 
ous times, speculative fever may be checked by 



REGULATION OF PRODUCTION (33 

artificial restraint on advancing prices, produc- 
tion is not checked, and the very fact that prices 
are relatively low, stimulates the demand and 
pushes production to its utmost capacity. So 
great was this stimulus that, during the latter 
part of 1902 and the first of 1903, the railways 
of the United States were unable to move the 
freight offered. In the effort to avert one dis- 
aster, another was invited. Speculation was 
discouraged, but over-production was stimulated 
and depression hastened. The trouble with this 
effort at regulation of industry was that it tried 
to resist natural economic forces instead of ad- 
justing industry in obedience to their laws. 
The attempt was to regulate price rather than 
production, to control the symptom without con- 
trolling the disease. The real opportunity for 
Tegulation is in production. When that has 
been so gauged that it fits consumption approxi- 
mately, there will be no serious trouble with 
prices, unless somebody attempts, by artificial 
means, to fix them on a level too high or too low. 
The market itself is the only safe regulator of 
prices. 

Professor Ernest Von Halle, an eminent 
German economic writer, made a statement con- 
cerning the policy and effect of trusts (cartels) 
in Germany. In reply to a series of questions 
propounded by Consul-General Mason at the in- 
stance of the U. S. State Department, he said : 



(54 FATE OF THE MIDDLE CLASSES 

"I do not hesitate to say that in my opinion 
Germany would be already in the midst of a 
dangerous industrial crisis but for the modify- 
ing and regulating influence of our cartels in 
most branches of production and distribution. 

"This country, with its dense population 
and increasing capital that seeks employment, 
could not stand that reckless speculation that 
would result from unrestrained competition. 
Modern production by means of steam-driven 
machinery can not stand unlimited competition, 
which too often leads to the destruction of the 
value of large capitals. Machine production re- 
quires close technical regulation and does not 
admit of economic anarchy. 

"So the effect of cartels seems to have been 
to initiate a more harmonious system, permit- 
ting promoters to invest their capital in many 
instances with ease and safety, where, without 
combination they might have been too timid to 
assume the risks of unlimited competition. The 
relatively low quotation of German consols and 
other public securities may be partly attributed 
to the great number of safe investments in car- 
telized industrial undertakings." 

As to the effect of combinations on prices in 
Germany, Prof. Von Halle says : 

"I only know of a few cases where complaints 
have been made about undue advance in prices 
originating from cartel manipulations. The 



REGULATION OF PRODUCTION (55 

wholesale cartels seem to regulate their prices 
rather closely in conformity with the general 
tendencies of the markets, while shopkeepers' 
cartels try to keep theirs as steady as possible. 
It has been frequently shown, especially in late 
years, that the large wholesale cartels have also 
followed the policy of steadying prices, and 
While they have served to avoid local and tem- 
porary breakdowns, they have in various in- 
stances officially warned their members and 
other industries to refrain from the exaction of 
excessive profits in times of generally rising 
markets. Here and there they have offered long 
contracts for one or two years' supplies which 
they have on the other hand sometimes enforced 
on their customers." 

The following paragraph is especially signifi- 
cant: 

"The regulating influence has been very 
strong where dealings took place between a num- 
ber of powerful cartels in various phases of in- 
dustrial production. The general impression is 
that this steadying tendency has been the most 
characteristic effect of cartels upon the home 
trade." 

Regulation in Germany seems to have been 
successful when it confined its efforts to adjust- 
ing production to demand. The effort to keep 
prices down in prosperous times in spite of 
heavy demands has hastened the day of over- 



gg FATE OF THE MIDDLE CLASSES 

production and led to a condition which made 
it necessary to export a large surplus at low 
prices in order to relieve the home market — 
exactly the result of an artificial price on steel 
rails in the United States. 

It is instructive now to study the new factor 
mentioned in the last paragraph quoted from 
Prof. Von Halle, in which he says that the regu- 
lating influence was very strong "where deal- 
ings took place between a number of powerful 
cartels in various phases of industrial produc- 
tion." There we see the effect of the federa- 
tion of industrial combinations, which is the 
longest step toward regulation. When federa- 
tion takes place, a clearing-house of industry be- 
comes possible. 

This means the exchange of information 
showing the relative supply of labor in the 
principal industries. If, for example, there 
should be a shortage of ten per cent, in the 
cotton mills and a surplus in another industry, 
the information would be available much earlier 
than it could be under present conditions. 

The transfer of labor from overdone indus- 
tries to others which need help is an important 
factor in the regulation of production. 

Labor released from fields and factories by 
labor-saving machinery, is constantly seeking 
new occupations, and as it must have a living, 



REGULATION OF PRODUCTION Q>j 

there is a tremendously growing demand for 
new industries. 

There is in the multiplying wants of man 
enough to engage his attention for the reason- 
able day's work. New wants are increasing as 
fast as labor is emancipated from its old em- 
ployments, and if only there were a more ready 
transference of the surplus energy of the world 
from congested industries to new ones, there 
would be more uniform and remunerative de- 
mand for all the products of toil. The salva- 
tion of labor as well as capital, is to be found in 
more timely information and a prompt trans- 
fer of both from the industries that are over- 
done to others which are unable to meet the 
demand for their products. 

The difficulty in transferring labor and capi- 
tal from one undertaking to another is that they 
are not sufficiently organized and not sufficiently 
informed as to the extent of supply and demand. 
The consolidation rapidly progressing, of most 
establishments in important industries, will to 
a large extent overcome this difficulty, for as 
one head or one set of heads comes to control 
an industry, it will know the total capacity of 
production and will find means to measure the 
remunerative demand. When that stage is 
reached, production will begin to adjust itself 
to consumption in a natural way. A further 
step in the progress toward adjustment will be 



68 FATE OF THE MIDDLE CLASSES 

the conference of combined industries in differ- 
ent lines for exchanging information as to the 
extent of production and consumption, and this 
will lead to co-operation in the transfer of labor 
and capital to the point of greatest need. The 
natural tendency to adjust the supply of labor 
and capital according to remunerative demand 
will so far be freed from present restraints that 
labor will find its best market far more quickly 
than it does now, and the harmful results of 
over-production or misdirected energy will be 
reduced to a minimum. 

The further obstacles to such transfer caused 
by the specialization of labor, unfitting one 
man for another's employment, may be in a 
measure overcome by the broader education of 
skilled labor, with wider training, which will 
give the artisan an alternative craft. 

Much relief in times of depression would be 
afforded by a broader training of labor, which 
would give a pleasant and profitable change 
from languishing industries to others. 

There are arts and industries, whose products 
greatly add to the comfort of living, which 
might be used as absorbents of overflow labor 
from other industries. 

If it became a part of the training of labor to 
have some such alternative craft, it would be 
fortified against times of unemployment in the 
main industry of its choice. Such surplus in- 



REGULATION OF PRODUCTION qq 

dustries would be almost always profitable, be- 
cause not overdone, and if more than hand 
trades, the necessary capital would be easily se- 
cured. For some of the overflow labor the 
alternative craft might take the form of flower 
culture, market gardening, trucking, and poul- 
try farming, the products of which are in never- 
failing demand at remunerative prices. The 
appeal to mother earth would never be in vain, 
and the change would be refreshing and in- 
vigorating to the factory operative, so long pent 
between walls. The greater supply of whole- 
some food would be an immense advantage, not 
only to the producer but to the entire com- 
munity. 

It would be a great stay and comfort to the 
artisan to know that if there came a time when 
work failed in his chosen trade, he had some- 
thing to fall back upon, and that something an 
occupation for which he had skill and training, 
making it a practical, dependable resource, 
which, while it supported his family, would 
build up his physical frame and tone up his 
mind by the invigorating effects of change. 

Specialization has many„ advantages, but 
with them the very great disadvantage of nar- 
rowing the sphere of life and this tends to pro- 
duce cranks and extremists. A broader train- 
ing and fuller experience of life would give us 
broader and better men. 



70 FATE OF THE MIDDLE CLASSES 



Chapter VIII 

HOW NATURE HELPS REGULATION 

The interdependence of industry spreads a sur- 
plus over a wide area, and the wider and freer our 
commerce, the more are the evil effects of over-pro- 
duction mitigated. 

CO-OPERATIVE regulation of industry is 
assisted by natural forces. They lead 
regulation and prepare the way for it. 

In order to appreciate this fact in its full 
significance, it is necessary to look into the 
interdependence of industries and see there the 
play and counterplay of connecting influences 
which operate to stimulate or check production. 

In the long depression that followed the panic 
of 1893, nature came to the relief of industry. 
The fields of the Western States brought forth 
immense crops of grain and the railroads of 
that section were taxed to the limit of their 
facilities to move the crops within the usual 
time. In the New York stock market the price 
of "granger" stocks went up and others re- 
vived in sympathy. At the same time there 
was a revived demand for lumber to renew and 
increase the rolling-stock and to renew bridges 
and other structures. In the years of depres- 
sion and bankruptcy, railroads had lived a hand 
to mouth existence and neglected their equip- 



HOW NATURE HELPS REGULATION 71 

ment. When the deluge of grain came they 
placed orders with the car works and lumber 
mills. For this reason the lumber industry was 
the first to revive in the South. Gradually the 
stimulus spread, with increasing return for cot- 
ton and reviving business, and the tide of pros- 
perity rose, inundating all industry, until the 
summer of 1903, when it was discovered that 
there was a surplus of iron and steel. Then be- 
gan another period of depression. 

In the period from 1900 to 1903 there was 
an unusual demand for manufactured goods, es- 
pecially for products of iron and steel. Pro- 
duction increased at such a prodigious pace that 
for the first time in their history the railroads 
were unable to move the products of the fac- 
tories. Iron furnaces were compelled to bank 
their fires because the railroads could not bring 
them coke. 

Here transportation applied a natural check 
to production. Within a short time the rail- 
roads themselves received a check from pro- 
ducers. By the middle of 1903 production be- 
gan to fall off and by the end of the year the 
demand for rolling-stock was so much less that 
railroad companies began to countermand orders 
for cars. Here again was a further check to 
production. Car works, car- wheel works, fur- 
naces making car-wheel iron and sawmills cut- 
ting car timber and bridge timber saw the de- 



72 FATE OF THE MIDDLE CLASSES 

mand for their product slacken and almost 
cease. By the summer of 1904 many of these 
plants were idle. 

Rapidly the process runs from industry to 
industry until, in the country as a whole, there 
may be a million unemployed men. The law 
of supply and demand operates to force down 
the wages of labor still employed, and this re- 
duces the purchasing power of the wage-earners 
and in the same proportion curtails the demand 
for supplies. The profits of business shrink and 
business men spend less freely. Again the de- 
mand is reduced. So the painful process goes 
on until the extremely low prices and low wages 
tempt the investment of hoarded capital and a 
reaction sets in. 

At such times single industries, supported by 
export demands, often present a curious contrast 
to the general depression. In 1903 the high 
price of cotton brought into the Cotton States 
about $617,000,000 for one crop and the South 
was more prosperous than ever before. This 
cotton crop probably prevented serious trouble 
when, in a time of monetary stringency, the 
Government had to pay $40,000,000 to France 
for the Isthmian canal. 

It is estimated that Europe paid this country 
$350,000,000 for its share of the cotton crop of 
1903, and this great balance to the credit of the 



HOW NATURE HELPS REGULATION 73 

United States was the mainstay of the money- 
market in 1903-4. 

This incident in the history of the cotton crop 
shows the salutary effect of intimate commer- 
cial relations with other countries. The effects 
of industrial disturbances are mitigated when 
we have the world for a market. Influences 
that paralyze the home market are scarcely felt 
abroad, and the world comes to the relief of our 
producers when the purchasing power of our 
own people runs low. 

Pig iron furnishes another illustration. In 
1896 and 1897, when the price of pig iron fell 
below the cost of production, an export demand 
sprang up and thousands of tons went abroad. 
This took off much of the surplus and the home 
market revived. Then exportation ceased. In 
1901-2 when production could not keep pace 
with demand, we imported iron and steel. In 
1903 over-production was again evident and 
prices began to fall. By June, 1904, pig iron 
went down to the exporting point and the sur- 
plus began to flow abroad again. Once more 
the world came to our relief, but a renewed do- 
mestic demand again raised prices and stopped 
export. 



74 FATE OF THE MIDDLE CLASSES 

Chapter IX 

SHALL COMPETITION SUKVIVE? 

Natural monopoly holds the key to the situation 
and only government can control it. 

This brings us to the important question, Who 
shall control the government? 

THE popular dictum, "Competition is the 
life of trade," has done good service, but 
those who see no other force at work in the world 
are oblivious to the rise and fall of institutions. 
This new force which disputes v the ground with 
competition is co-operation. 

Sociologists tell us that there comes a time in 
the history of governments, when the militant 
type, having done its work, gives place to the 
co-operative type. 

Says Spencer: 

"From war has been gained all that it had to 
give. The peopling of the earth by the more 
powerful and intelligent races is a benefit in 
great measure achieved, and what remains to be 
done, calls for no other agency than the quiet 
pressure of a spreading industrial civilization 
on a barbarism which slowly dwindles." 

The same evolution has brought industrial in- 
stitutions to the point Where the militant type, 
characterized by competition, has reached the 
danger point. By the survival of the fittest we 



SHALL COMPETITION SURVIVE? 75 

have industries so great and so powerful that 
they would destroy each other and pull down the 
whole framework of business if competition be- 
tween them went on without restriction. For 
example: the big railway systems have to put 
buffer combinations called traffic associations 
between themselves to prevent mutual destruc- 
tion by cut-throat competition. When the courts 
dissolve these buffers, the next thing is a consol- 
idation on a larger scale, or if that is defeated, 
a community of interest and a kind of unwritten 
working arrangement which serves as a modus 
vivendi. 

Competition unrestrained becomes destructive 
under modern conditions, and the strong crush 
or capture the weak. Thus competition tends to 
destroy itself, and to establish monopoly in its 
place. The ranks of industry are thinned by 
this warfare, but the survivors are great in pro- 
portion to the number of their victims. 

Among the great survivors we see some 
competition, although they seem to be afraid of 
each other and exercise great ingenuity in devis- 
ing means to avoid conflict. Their truces some- 
times result in further combination on a larger 
scale, and thus more and more, industry is uni- 
fied. 

Will competition survive this process ? Are 
we really coming into an era of monopoly? 
About this the consensus of opinion among 



76 FATE OF THE MIDDLE CLASSES 

economists is that monopoly can not be estab- 
lished unless it is a patent, a "natural monop- 
oly," or one supported by the discrimination of a 
natural monopoly. On looking over the list of 
great industries which occupy a commanding po- 
sition in the business of the United States, we 
find that the strongest of them are connected 
with natural monopolies in some way, or enjoy 
patent rights which amount to monopoly. 

Of the natural monopolies, the strongest are 
the railways, which have no competition at way 
stations and practically a monopoly at other 
points by the establishment of uniform rates, 
through traffic agreement or some kind of under- 
standing. Their only competition is in service. 
Street railways, gas works and waterworks usu- 
ally have a complete monopoly. 

The strongest combinations in the industrial 
world are formed by two or more natural monop- 
olies. A familiar example is the combination 
of railways owning anthracite coal mines in 
Pennsylvania. A more complex case is that of 
the United States Steel Corporation. It con- 
nects railways, coal mines and iron ore deposits 
which are natural monopolies, with factories, 
which by themselves would be competitive. In 
addition it owns patents, which are monopolies 
made by the Government. 

The oil wells are natural monopolies, but re- 
fineries separate from the wells were competi- 



SHALL COMPETITION SURVIVE? 77 

tive. They are combined in the Standard Oil 
Company. 

The combination of natural monopoly with 
competitive industry, either by ownership or by 
reciprocal favor, results in such great advan- 
tage that these concerns tend to overshadow their 
competitors and cause grave apprehension that 
they will eventually sweep the field and drive all 
competitors out of business. The Standard Oil 
Company has come so near doing this, that it 
might be called a practical monopoly. United 
States Steel Corporation is young, but has be- 
come the greatest industrial combination in the 
world. But the Steel Corporation, great as it is, 
is not a complete monopoly and can not maintain 
the price of rails without an understanding with 
other producers. A bulletin of the American 
Iron and Steel Association showed that in 1901 
this corporation produced less than one-half the 
pig iron and only fifty per cent, of the rolled 
products of steel. 

The New York Journal of Commerce, com- 
menting on this fact, said : 

"It has been one of the interesting phases of 
the development of trusts that they have not pre- 
vented new competition even when they have 
begun with the inclusion of nearly all produc- 
ing plants and every promise of being approxi- 
mate, if not absolute monopolies. The Steel Cor- 
poration is so vast in its capitalization and in 



78 FATE OF THE MIDDLE CLASSES 

the extent of its operations that it might well 
have frightened off competition, but from its 
very organization, new competition has been 
starting up. What would be the fate of some 
of the plants if consumption should become in- 
sufficient to absorb the entire production and 
whether the great plants or the small ones would 
best endure a period of contraction, are problems 
that only the future can solve. But for the pres- 
ent and the immediate future consumption is 
absorbing the entire production and has com- 
pelled manufacturers to import steel." 

Since this paragraph was printed, production 
passed consumption, business fell off and the 
United States Steel Corporation passed its divi- 
dends on common stock depressing the stock to 
nine dollars a share. 

In this connection the experience of the 
United States Rubber Co. is instructive. Ac- 
cording to the report of President Samuel P. 
Colt, issued on May 20th, 1902, the company 
was then ten years old, and in 1893 controlled 
half of the rubber output of the country. In 
1898 this proportion was increased to three- 
fourths by the acquisition of the Boston Rubber 
Shoe Company. With this proportion of the 
product in its hands and with a capital of $47,- 
000,000, the official report of the concern shows 
a deficit of $418,103 during the year ended 
March 31, 1902. 



SHALL COMPETITION SURVIVE? 79 

This remarkable result of the operations of 
one of our most powerful combinations is shown 
to have arisen from the previous error of fixing 
prices too high. President Colt says : 

"While the United States Rubber Co., during 
the ten years of its existence has met with a fair 
degree of success, it became apparent more than 
a year ago that prices were maintained at a fig- 
ure which stimulated competition and the form- 
ation of new companies and the investment of 
new capital. Consequently, in January and Feb- 
ruary, 1901, your directors determined that it 
was wise to make a marked reduction in prices, 
which brought the selling price of the standard 
grades of goods down to about the cost of manu- 
facture. The result of this reduction has been 
that sales have largely increased. For the year 
ending March 31, 1902, the gross sales of the 
company were $49,917,536.84 as against gross 
sales of $32,224,216.14 the previous year. 

"The regaining of trade through the reduction 
in prices as above shown has been largely accom- 
plished. 

"The problem now before us is, how to manu- 
facture and market the large product of goods 
at a fair margin of profit." 

This shows that exorbitant prices enforce their 
own penalty. 

It is pertinent to recall two facts, which make 
for competition, the increasing supply of capital 



80 FATE OF THE MIDDLE CLASSES 

seeking investment and the constant release of 
labor from old occupations by the introduction 
of labor-saving machinery. This release of la- 
bor is only temporary, but it throws a supply 
on the market for new enterprises. When we 
remember that consolidation is in itself a form 
of labor-saving machinery we can see that this 
process tends to increase the temporary displace- 
ment of labor, especially the labor of superin- 
tendence. 

The steady decline in interest rates on first- 
class securities is sufficient evidence of the in- 
crease of capital in proportion to opportunities 

for investment. This fact is established bv the 

«/ 

experience of life-insurance companies. Twenty 
years ago their schedules of premiums on poli- 
cies were based on four per cent, compound in- 
terest. About ten years ago they began to 
change to a Sij/i per cent, basis, because they 
found their investments were not likely to yield 
four per cent. Recently they have begun again 
to readjust their premiums, and this time they 
have adopted a three per cent, basis. Thus in 
twenty years the rate of interest on the best se- 
curities has fallen twenty-five per cent. 

Couple with this condition the fact that we 
have at times had a million men unemployed, 
and consider the natural result — labor and capi- 
tal unite in new industries to compete with older 
ones. 



SHALL COMPETITION SURVIVE? gj 

The New York Journal of Commerce said on 
June 23, 1902: 

"It has taken twelve years to rehabilitate in- 
dustrial capital which may perhaps be fairly 
valued at four and a half billions, with a view 
to shielding industry from the operation of the 
natural law of competition, whilst the recon- 
structions have made but insignificant additions 
to the original capitals of the blended corpo- 
rations. 

"Within one-eighth of the same period the 
creations of independent industrial capital have 
amounted to approximately five billions of dol- 
lars."* 

The events which occurred in the years suc- 
ceeding the publication of this article have 
amply established the correctness of the editor's 
view. The common stock of many great com- 
binations became a drug on the market. 

Having set forth conditions which tend to 
make competition permanent on a scale con- 



* Accompanying this statement were the statistics 
on which it was based. From carefully prepared 
compilations made by the Journal of Commerce, it 
appears that during the twelve years from 1890 to 
1901, inclusive, the new capitalizations of consoli- 
dated corporations aggregated $6,474,000,000 of 
which $1,998,000,000 consisted of preferred stock, $3,- 
362,000,000 of common stock and $1,014,000,000 of 
bonds. Two billions of common stock are rejected 
as water, leaving $4,500,000,000 as the true capital- 
ization. Of this only $300,000,000 was new capital. 



82 FATE OF THE MIDDLE CLASSES 

stantly growing larger as combination proceeds, 
we have now to consider other facts which make 
for monopoly. 

It is an acknowledged fact that railways have 
given secret rebates or special rates to large 
corporations whose business was of such pro- 
portions that it became an object of serious com- 
petition between railway systems. The Stand- 
ard Oil Trust got its start and crushed rivals by 
the aid of railway discrimination. So long as 
the States and the Federal Government fail to 
stop railway discrimination railroad managers 
will have it in their power to foster monopolies. 

The power of patronage tends to fortify 
monopoly. 

The ruling spirits in the consolidated indus- 
tries have control of immense railway systems. 
It is idle to deny that such a community of 
interests in transportation and manufactures 
will operate to the advantage of both. There 
is no law against giving the patronage of such 
railroads to the industrial corporations in which 
the owners are interested. Railroads are im- 
mense purchasers of steel and in dull times the 
turning of their orders one way or another 
would have such an effect as might decide 
whether certain mills were shut down or even 
placed in receivers' hands. 

Take another example of its possible effect: 
The same man who dominates thousands of miles 



SHALL COMPETITION SURVIVE? 33 

of railways stretching across the continent, has 
organized a combination of transatlantic steam- 
ships. With a community of interests between 
the railroads that haul grain and other export 
products to the sea and the ships that carry those 
products to Europe, it is easy to see what ships 
will haul the grain delivered by the roads. What 
law can prevent steamship lines which cross the 
ocean from making their traffic connections with 
the railways owned by the same group of capi- 
talists ? 

As in the case of the railways, the steam- 
ship lines can give their patronage to the fac- 
tories and mills owned by friendly parties. 
As the modern steamship is built of steel and 
combines the products of three hundred indus- 
tries, it is evident that the turning of this busi- 
ness one way or another will have a far-reaching 
effect. 

It is in this direction that a large proportion 
of the power of transportation companies lies. 
Rebates and discrimination are restrained by the 
necessity for secrecy and the danger of discov- 
ery. There is no such restraint on the powerful 
lever of patronage. The railways, to begin with, 
employ 1,300,000 persons, and paid out to 
labor in 1903 the sum of 757 millions. Their 
total disbursements were 1,257 millions. Their 
purchases sustain the car works, car-wheel 
works, and locomotive works, which employ 



84 FATE OF THE MIDDLE CLASSES 

thousands of men, and largely sustain other 
works making steel rails. None of these indus- 
tries could exist without the railways. 

Now see what could be done by a group of 
capitalists owning railways, steamships and in- 
dustries to build up their own factories and 
divert business from others. 

The principle of community of interests has 
in it possibilities more far reaching than the 
public has realized. It is a subtle and irre- 
sistible power which may use in a positive way 
the methods which negatively used to go by the 
name of boycott. 

Thus the positive form of patronage, unac- 
companied by the ugly features of the boy- 
cott, can hardly be controlled by legislation. 
This possibility of the community of interest 
regime has not fully developed, but it certainly 
will develop if present conditions continue. This 
assertion is based on certain traits of human 
nature which have manifested themselves in 
politics. The influence of patronage there is 
tremendous. So powerful is it that once the 
spoils system has fastened itself on a country, 
it takes years to break the shackles of patronage 
and substitute civil service. We have not yet 
accomplished that emancipation in America. 

Patronage in politics is so demoralizing that 
at times it amounts to corruption of a kind 
so subtle and elusive that the law can not take 



SHALL COMPETITION SURVIVE? 35 

hold of it. Men who could not be reached by 
money bribes are controlled by patronage. 

When the power of patronage is brought to 
bear by several powerful corporations or combi- 
nations of corporations upon another, the force 
is irresistible. Railway systems combining at 
a given point can crush a troublesome rival by 
diverting traffic from it and leaving it with an 
empty treasury. Next there comes a receiver- 
ship, followed by a forced sale, at which the 
combination buys in the property of its victim 
at a ruinous price. 

The recent combination of manufacturing es- 
tablishments on a colossal scale makes possible 
similar operations. 

The public apprehension so far has been di- 
rected to extortion in prices, but it has not been 
realized that without raising prices to an extor- 
tionate level, community of interests may build 
up an industrial and financial oligarchy before 
which no rival can stand and so powerful that 
nothing short of a revolution will break its fet- 
ters. 

From the ordinary dangers of combinations, 
the natural law of competition seems to be 
sufficient protection, but when the tremendous 
power of patronage is added to the power con- 
ferred by natural monopoly reinforcing com- 
bination, with a community of interest running 
through transportation, mines, and manufac- 



86 FATE OF THE MIDDLE CLASSES 

tures, through natural monopolies and their de- 
pendencies, a new situation is created, the end 
of which it is difficult to foresee. It is preg- 
nant with dangers which may test the strength 
of our Government. 

The key that unlocks this problem is the con- 
trol of natural monopolies. Their power is 
supreme unless controlled by government, and 
if not controlled, they breed a series of depend- 
ent combinations, which amount to practical 
monopoly. 

There comes then the inevitable conflict be- 
tween the public and the owners of natural 
monopoly, over the question of government con- 
trol. This issue is clearly made in the prop- 
osition to regulate railway rates through com- 
missions and the stubborn opposition by the 
railway owners to every effort to make regula- 
tion effective. 

Monopoly, or supreme power was never per- 
mitted to remain indefinitely in human hands. 
Tyranny is inseparable from it. This always 
has been and always will be true. It is a trait 
of human nature, and until we have a new 
kind of mortal, will continue to be. The latent 
danger is in man himself, without regard to 
class or condition. It is a true instinct which 
makes people resist such power, whether in 
politics or industry, and they will go to any 
length and use any means that may be neces- 



SHALL COMPETITION SURVIVE* 37 

sary to control the men or the institutions which 
rise to this dangerous eminence. It would be 
well for the owners of railroads to consult his- 
tory on this subject. 

The greater the power, the larger the com- 
bination, the vaster its resources, the greater 
will be the struggle for control; and when con- 
trol is to be exercised by government, it can not 
be established except after a struggle in which 
all the arts of the demagogue will be used to 
prevent it. The very worst elements of politics 
are invoked when the politician is in league with 
business interests staked on the result of gov- 
ernmental action. The practical politician 
trading offices is pure and undefiled in com- 
parison with the political agent of a corporation 
that is willing to buy results at high prices. 

The danger is that in the effort to control 
monopoly and the opposition thereto the elec- 
torate may be corrupted and a permanent poison 
instilled into the body politic. We have had a 
foretaste of this in the corruption of municipal 
government during the fight for franchises of 
public utilities. 

Against this assault on the citadel of liberty, 
the best fortification is the uplifting of the 
masses by thrift, education, religion and the 
genius of organization, which will enable them 
to present a solid front against the encroach- 
ments of power. 



gg FATE OF THE MIDDLE CLASSES 

There is no safety in an ignorant democracy 
and there is no safety in the numerical majority 
of the masses unless they are wisely led. They 
will not be wisely led unless they are well in- 
formed. Hence the necessity that the public 
be kept posted as to the true conditions of in- 
dustry, especially with regard to industrial 
combinations. Ignorance of the masses is the 
demagogue's opportunity and the opportunity 
as well of the despot. To defeat both and hold 
the even balance of justice there is need of light. 

In other words, publicity in corporate affairs 
is not only necessary for the protection of in- 
vestors, but absolutely necessary for the pro- 
tection of government itself. 

The facts so brought to light will create an 
irresistible public opinion in favor of govern- 
ment control of natural monopolies. Every 
man, every business firm, every manufacturer, 
not a beneficiary of discrimination, and every 
city not especially favored will at once see that 
prosperity depends on fair treatment, and there 
will be a thousand voices raised for regulation 
to one against it. This may be resisted for a 
time, but eventually nothing can stand before 
it. Regulation will come and then the strings 
of dependent monopolies will fall apart like 
ropes of sand. 



Chapter X 

IS IT A NEW FKANKENSTEIN ? 

Beasts of prey are fewer than the men who hunt 
them. 

That method which arises by necessity from the 
relations of things is not anarchy but obedience to 
the law of nature. 

AT this point I am aware that the over-zeal- 
ous patriot may bring a railing accusa- 
tion against me. He will say that I have called 
into existence a new Frankenstein, a monster 
with great power and little mercy, human in its 
intelligence and inhuman in its indifference to 
suffering. 

The devilish ingenuity of the man who could 
invent such an engine of oppression mi^ht well 
be a subject for moralists to dilate upon, but 
it happens that such things are not invented, 
except allegorically. There is a basis in fact 
for all of them, however fanciful the garb in 
which the imaginations of authors may array 
them. 

When necessity created the means to protect 
the producer against his own misdirected energy, 
it put into his hands a two-edged sword which 
may be used to oppress his neighbor while he 
defends himself. This is the machinery to 
regulate production. No man created it, nor 



90 FATE OF THE MIDDLE CLASSES 

has anyone planned it, or brought it about of 
his own free will. It was not invented by man, 
because its component parts were built up for 
another purpose — the purpose of self-preserva- 
tion. Men and corporations were forced to save 
themselves from loss or bankruptcy by uniting 
with their competitors and stopping the de- 
structive warfare which had been waged be- 
tween them. 

What has been described is the thing that 
exists and so much of the future as casts its 
shadow before. It is not what we devise or 
what we imagine, but the thing which we find 
at large upon the earth, working changes which 
come whether we like them or not. 

When we get upon this plane where age-long 
influences are at work, invention is not of man, 
unless it be in the sense that he has found or 
come upon that which a higher power has 
brought about through long devise. Whether 
we call it evolution or providence, it has a 
method which is more wonderful than miracle. 

The trust is a world-wide fact that has to be 
reckoned with. It exists in all civilized coun- 
tries, regardless of tariffs and anti-trust laws. 
It is found in Europe, where government ap- 
proves as in America where it is under the ban, 
in free trade England, as well as in the coun- 
tries where protective tariffs have been erected 
to keep out foreign competition. It is true 



IS IT A NEW FRANKENSTEIN? g^ 

that tariffs favor its development, but they are 
not the prime cause. That cause is universal, 
for it builds up trusts wherever business is car- 
ried on by modern methods. 

The tendency to use the trust as machinery to 
regulate production is also general. Efforts of 
this kind have been made at the same time in 
different parts of the world, by different sets of 
men, speaking different languages, who doubt- 
less had no idea that other men in other coun- 
tries on the other side of the world were doing 
the same thing. The suggestion came to them 
separately and independently and it arose out 
of the relations of things. When a certain num- 
ber of producers were joined together, new pos- 
sibilities arose and were seen by the men in 
charge. 

That method which arises by necessity from 
the relations of things is not anarchy, but obedi- 
ence to the law of nature. This is nature's way 
in all her walks. She moves on the line of least 
resistance. The development of the trust seems 
to be a case of that kind. 

We have the trust because the world needs 
it. 

Like everything that does something the 
world can not do without, the trust has gotten 
to itself great power. 

Great power carries with it the danger, 



92 FATE OF THE MIDDLE GLASSES 

amounting to certainty, that it will be abused 
if not restrained. 

That is the actual situation with regard to 
the trust if we can suppose that things will re- 
main as they are. Incredible as it may seem, 
those who control the trusts seem to think the 
status quo will be preserved, but in this they are 
counting without their host — the host of con- 
sumers. It is no more certain that action 
causes reaction than that organization begets 
counter-organization. This is the key to the 
situation. 

To those who may be alarmed by the Frank- 
enstein idea, let me suggest the reflection that 
beasts of prey are fewer than the men who 
hunt them. The whole world robs the robber ; 
every man would oppress a tyrant. We may 
then, without disquiet, continue to study the 
nature and habits of this new thing, whether it 
be Frankenstein or Friday, robber or servant. 
The chances are we shall find it has the quali- 
ties of both and the more closely and calmly we 
study it the more successful we shall be in har- 
nessing it for useful purposes. 



Chapteb XI 
AN IEEEPKESSIBLE CONFLICT 

We have to deal with a new and dangerous power, 
which is ready to measure strength with any force 
that can be brought against it. 

IN" this predicament we are under the appar- 
ent disadvantage of seeming to antagonize 
an institution which we have shown to be not 
only useful, but absolutely necessary to the fur- 
ther progress of civilization. But there is no in- 
consistency in showing the danger Where we 
have already pointed out the advantage. We 
must look at things as they are, and with eyes 
open, we can not help seeing the irrespressible 
conflict that is coming between the great cor- 
porations and the people they are supposed to 
serve. 

What reason is there for saying there will be 
a conflict between society as a whole and the or- 
ganizations which constitute one of its most 
useful parts? This question is pertinent, for 
there is no place for alarmist views at a time 
when sensationalism is run mad and the air is 
thick with the confusing dust of discord. There 
is no more virtue in complaisancy. The indo- 
lent mind is never prepared for an emergency 
and there is nothing more dangerous than the 
conservatism which refuses to use its eyes. 



94 FATE OF THE MIDDLE CLASSES 

The best reason for thinking there will be 
such a conflict is that it has already begun. 
There are few States of the Union where the 
railroad companies or other great combinations 
are not in conflict with the people. In several 
States political campaigns have been based on 
the single issue of railway or corporation rule. 
Such contests have been fought out almost 
every year for a decade and several are on now. 

Sometimes the battle is fought in the legisla- 
ture upon a question of taxation, sometimes in 
the election to determine whether governors or 
legislators shall be corporation or anti-copora- 
tion men. 

Other contests are based on measures to pro- 
tect shippers from the railroad discrimination 
which makes or unmakes men and markets. 
The courts are busy with cases of this kind and 
in some States hot political campaigns are made 
to determine whether men friendly or antago- 
nistic to railroads shall constitute the commis- 
sions that will pass on railroad questions. 

Perhaps the most stubborn contest of all is 
that now on between the shippers and the rail- 
way companies over the regulation of freight 
rates. This question has been argued before 
committees of Congress for several years by 
shippers and railroad men from different parts 
of the country, and each year the contest grows 
warmer. Congress waits on public opinion and 



AN IRREPRESSIBLE CONFLICT 95 

both sides are engaged in making their appeal 
to Caesar through the press. The fight over 
this measure has hardly begun. So far the or- 
ganization is nearly all on one side and the rail- 
ways have an immense advantage. 

There is a desperate conflict in the cities 
where the public has been robbed of property 
worth hundreds of millions by franchise grab- 
bers who bought up aldermen. From the days 
of the Tweed ring in New York until the sale 
of street-car franchises by St. Louis aldermen, 
these valuable rights have been the favorite 
booty of incorporated plunderers. In some 
cases where it was not safe or expedient to at- 
tempt bribery, the franchise grabbers have 
bought or subsidized newspapers and filled the 
atmosphere with false issues until the public 
mind was beclouded and they were able to se- 
cure for a song, rights which they sold for mil- 
lions. In doing so they have ruthlessly at- 
tacked any one who stood in their way and faith- 
ful public servants have been punished for their 
virtue by these highwaymen. Such contests 
are increasing in number and bitterness and 
there is every reason to think they will continue 
until the question of corporation rule is settled. 

There must always be some contest between 
different classes of society for the enactment or 
defeat of laws supposed to favor or burden 
certain classes. But the natural right of self- 



96 



FATE OF THE MIDDLE CLASSES 



defense which every class possesses, is not to be 
confused with the condition where certain in- 
terests are organized for predatory purposes — 
either to take from the people or the Govern- 
ment something to which they are not entitled, 
or to hold something which ought to be given up 
as a just tax. 

Predatory organizations are found in almost 
every city and State, about the municipal gov- 
ernment or the State legislature, and they not 
infrequently infest the halls of Congress. For 
example, a senator declared in his place and by 
his report as chairman of a committee, that cer- 
tain transcontinental railroad companies de- 
feated for many years the bills providing for 
construction of the Isthmian canal. 

These predatory organizations to a very large 
extent influence legislation and are ready to 
contest the ground with any force that has been 
brought against them. 

Such a condition exists because the people 
who suffer by such depredations are not organ- 
ized to meet the forces held together by the "co- 
hesive power of public plunder." So long as 
there is no efficient counter-organization this 
state of affairs will continue. Organizations 
are like armies, which can only be overcome by 
more powerful armies. 

Society is in a state of unstable equilibrium 
because certain classes or interests are solidly 



AN IRREPRESSIBLE CONFLICT 97 

organized and ably directed, while others nat- 
urally opposed to them are disorganized and 
demoralized — demoralized by the regularity 
with which they have been defeated in all con- 
tests with the organized. 

No condition of real stability can be reached 
until all the important classes or interests are 
separately organized and disciplined to the use 
of organization. In other words we have great 
forces operating, practically without resistance, 
against the interests of the masses of the people 
and they will continue to raid the public rights 
and public property until some kind of organ- 
ized defense is prepared. 

The masses of the people, in their simple 
faith, look to the government for protection, for- 
getting that the government is the representative 
of all the powers and interests that live under it, 
and of the interests thus embraced, the best or- 
ganized and ablest led are likely to prevail in 
the councils of government. They have able 
spokesmen in every legislative hall and about 
every executive officer. 

The only way to end the conflict between the 
people and the corporations is to complete the 
organization of all the classes whose interests 
are imperiled. This done, the different classes 
will take care of themselves. They will have 
peace when they can compel it. Complete or- 
ganization is the best guaranty of stability. 



98 FATE OF THE MIDDLE CLASSES 

Chapter XII 
THE SEPARATION OF CLASSES 

It is necessary to separate and organize before we 
can get together on a permanent and stable founda- 
tion. 

Justice requires the support of organization. 
Without justice there is no peace. 

A S foreshadowed in the preceding chapter 
**■ the good of society requires the separate 
organization of the classes which have different 
interests to develop and protect. 

The main functions of society from an eco- 
nomic standpoint are production, distribution, 
exchange and consumption. 

Under the head of production most of the 
classes called labor and capital are grouped, 
and as we shall see in the next chapter, they are 
already well organized and many of the issues 
between them have been fought over. The 
farmers as producers are little organized, but 
we shall see more of them later. 

Distribution includes the work of railways, 
steamships, etc. In a larger sense it may in- . 
elude commerce, but as that has interests differ- 
ent from transportation, we group it separately 
under the head of exchange. 

Transportation has given the best example of 
the complete organization of a class for of- 



THE SEPARATION OF CLASSES 99 

fensive, defensive and constructive purposes. 
It includes 1,300,000 wage-earners who have 
organizations of their own. 

Under the head of exchange we may group 
mercantile and banking interests, with that of 
insurance as an important auxiliary. 

Banking and insurance interests are thor- 
oughly organized and wield immense power 
which dominates the financial world. There 
is an extensive literature concerning them as 
there is about transportation. Their new fea- 
ture is the tendency to combination which we 
see in every phase of business. A development 
of this feature which has startled the public is 
the ease with which the immense assets of in- 
surance companies held in trust for policyhold- 
ers can be manipulated by barnacle corporations 
called trust companies, in the hands of insur- 
ance directors who combine in syndicates to 
feather their nests with the funds which the con- 
fiding public has placed in their hands. 

The mercantile class is partly organized, but 
not so thoroughly as producers, transportation, 
banking or insurance. 

There is a tendency of manufacturers to draw 
nearer and nearer to the consumer and thus 
eliminate the middlemen or merchants. This 
has hastened the day of organization among 
merchants. 

We have now to trace the organization of the 

Ltt 



100 FATE OF THE MIDDLE CLASSES 

producing classes in the two groups of labor 
and capital. Then we shall take up the con- 
sumers, who constitute the last and greatest of 
the economic groups ; with the complete frame- 
work of industry organized, we shall be able to 
see what kind of government it will support. 



Chapter XIII 
SEPARATION OF LABOR AND CAPITAL 

Action causes reaction and organization begets 
counter organization. 

I T P to this time we have considered combina- 
^■^ tions of capitalists, with merely inciden- 
tal references to labor. We have now to take 
into account combinations of laborers, as such, 
for concerted action in dealing with employers, 
and combinations of employers, as such for con- 
cert of action in dealing with labor. Then we 
shall learn something of the dealings between or- 
ganized labor and organized capital, and their 
experience in the effort to form double combina- 
tions including both of these great productive 
forces. 

We shall find the following stages of prog- 
ress : 

1. The guild, a combination of capital and 
labor. 

2. The separation of labor and capital in 
two camps under the factory system. 

3. The organization of labor and capital, lo- 
cally and nationally. 

In the different stages of this progress we 
shall see agitation accompanied by heat and 
violence in the early history of every organiza- 



102 FATE OF THE MIDDLE CLASSES 

tion of labor, tending gradually to conservative 
and pacific methods as experience educates the 
leaders to a higher and broader plane of thought. 
The same experience is duplicated in the or- 
ganization of capital, with a repetition of almost 
every unpleasant incident that accompanies the 
organization of labor. 

MEDIEVAL GUILDS 

The early form of combination between capi- 
tal and labor is found in the medieval guilds 
which were composed of merchants and master- 
workmen. The guilds were essentially differ- 
ent from trade unions, in that they did not in- 
clude in their membership the mass of laborers. 

The guilds were at one time, also political, 
as well as industrial bodies. In London it was 
the prerogative of certain guilds to control rep- 
resentation in the local government. 

The guilds were in the time of Edward III. 
monopolies, securing their exclusive privilege 
by the payment of large sums of money. Mem- 
bership in the guilds was dominated "freedom" 
and was purchased at a high price. It conferred 
the right to participate in the regulation of the 
craft and to have part in the political power ex- 
ercised by the guild. There were seventy-five 
of these in London and the most important were 
called "The twelve great companies." Member- 
ship cost from $22 to $570. 



SEPARATION OF LABOR AND CAPITAL 1Q3 

There was in these early organizations, both 
the merchant guilds and the trade guilds, the 
same tendency of human nature to seek advan- 
tage over its fellows that we see in the combina- 
tions of labor and capital at the present day. 
First of all, the guilds sought to eliminate com- 
petition and establish monopoly, and in this 
they succeeded better than modern combina- 
tions, because their monopoly was supported by 
law. By the payment of large sums to the 
crown these monopolies were secured, and be- 
cause the sovereign derived a revenue from this 
source, he jealously guarded the monopoly. So 
oppressive did these early monopolies become 
that they were obnoxious to the courts and Ba- 
con called them "fraternities in evil." They 
made entrance difficult by exacting heavy pay- 
ments, and further checked the supply of labor 
by limiting the number of apprentices a master 
might have. Apprentices were required to serve 
seven years, and this custom was made law by 
the statute of Elizabeth, which remained in 
force for several centuries. 

The public of those times regarded the trade 
guilds very much as the modern public regards 
the trusts, namely, as conspiracies in restraint 
of trade. As such they were repugnant to the 
spirit of the common law and the courts held 
them to be illegal. From the time of Edward 
I. to George IV. nearly forty statutes were en- 



104 FATE OF THE MIDDLE CLASSES 

acted to carry out the spirit of the common law. 

These combinations were partly capitalistic, 
for the masterworkmen who composed them 
were the manufacturers of that day, and partly 
of the labor element, for the masterworkman 
was still in the shop, working with hands and 
depending on manual skill as much as or more 
than upon his financial and executive ability. 
Their apprentices often became masters. 

Changed conditions growing out of the Ref- 
ormation, swept away most of the social and 
religious guilds, and the trade guilds, already 
unpopular, suffered gradual extinction as the re- 
sult of the growing sentiment of the times. 

TRADES UNIONS 

RText came the trades unions as a development 
of the factory system during the latter part of 
the 18th century. They differ essentially from 
the guilds in that they have not the capitalistic 
element and seek to bring in the whole mass of 
labor rather than to narrow the circle. Conse- 
quently, they have become more popular and 
their membership has reached larger propor- 
tions. They have, however, the same object in 
limiting the supply of labor, raising wages, and 
shortening hours. They also have the same fea- 
tures of mutual help in case of sickness or death, 
with the added provision for help in case of 



SEPARATION OF LABOR AND CAPITAL ^Q5 

strikes. The money spent in strikes, however, 
is but a small part of their total disbursements, 
which are largely for mutual help. 

The trades unions have some socialistic fea- 
tures which are a fruitful cause of disagreement 
between workmen and their employers. The 
most marked is the tendency to equalize the 
compensation of all journeymen, and to equalize 
their opportunities for promotion, regardless of 
individual merit. This system strives to put 
promotions on the basis of the turn at the mill, 
first come first served. The result is to place 
mediocre men in important positions which 
cnly the most skillful and the most intelligent 
should occupy. This minimizes the output of 
the establishment and puts it at a disadvantage 
in competition with others in which the same 
wage-scale is paid. In the long run, this must 
react on the labor employed in establishments 
organized on this socialistic principle, by mini- 
mizing the business and consequently decreas- 
ing the demand for labor. This, in the opinion 
of some intelligent observers, is a consequence 
already felt in England. The freer industry 
of other countries is too strong a competitor in 
the world's markets for British manufacturers, 
who are handicapped by a more rigorous appli- 
cation of this socialistic principle than is made 
elsewhere. That the same principle is ap- 
plied to a considerable extent in the United 



IQQ FATE OF THE MIDDLE CLASSES 

States is undeniable, and if it goes to the same 
length, it will have the same result. 

The great difficulty with trades unions has 
been that when they became strong through the 
accession of large numbers of men and began to 
feel their power, they yielded to the temptation 
to abuse it. 

The labor union, starting out with confidence, 
was often outgeneraled by the employers, even 
before there was such a thing as an employers' 
association. Then the workmen lost their tem- 
pers and resorted to violence and intimidation, 
carrying it sometimes to the extreme of terror- 
ism and crime. We have had such conditions 
on a large scale in the United States, particu- 
larly in the Pittsburg strike of 1877, when the 
courthouse was burned; and the great tie-up 
and accompanying riots at Chicago in 1894, 
when millions of property were destroyed, hun- 
dreds of miles of railway were blocked, and 
traffic was more or less interfered with in 27 
States. This greatest of all strikes was finally 
stopped by the United States army, when the 
governor of Illinois failed to restore order and 
the injunction of a Federal court was resisted. 

Labor there learned that violence was its 
chief danger, because it threw the laborer into 
collision with the Government, and that public 
sentiment not only sustained the Government in 
suppressing violence, but imperatively de- 



SEPARATION OF LABOR AND CAPITAL ^Q7 

manded the performance of that stern duty at 
any cost. 

The boycott was used with terrible effect un- 
til the courts punished it as a conspiracy to de- 
prive the non-union laborer of his liberty and 
the employer of his property. 

So organized labor, like other classes, finds 
itself debarred from the use of coercion, but it 
has remaining the right to strike and the appeal 
to public sentiment as effective weapons. In 
practice it has found that with able leadership 
these weapons are more powerful than any oth- 
ers so far tried, provided the unions act to- 
gether solidly, do not strike without good cause, 
and in striking maintain order and refrain from 
violence. 

Perhaps the best example of this is the an- 
thracite strike of 1902, when public opinion 
forced a powerful combination of railroads and 
operators to agree to the methods of settlement 
suggested by the President of the United States. 

There came a stage when the federation of 
local unions in national organizations gave the 
workmen more power than they knew how to 
exercise with moderation. They became arbi- 
trary and tyrannical and the demand for the 
closed shop, which absolutely shut off all hope 
of resisting their demands, was vehemently in- 
sisted on. Soon after the organization of the 
United States Steel Corporation it had to meet 



108 FATE OF THE MIDDLE CLASSES 

a strike, the avowed purpose of Which was to 
close against non-union labor all the plants of 
the corporation which were not already "closed 
shops." The corporation resolved to stake ev- 
erything on that issue and firmly resisted. In 
a few weeks this strike, which never had public 
sympathy, failed ignominiously. Similar 
strikes elsewhere against corporations not so 
strong financially were successful. 

About this time there arose the corrupt labor 
boss of the Sam Parks type, — who ordered 
strikes when his demand on the employer for 
money was refused. This was the last feather 
on the camel's back. 

employers' associations 

Employers, having at last realized that it was 
folly to attempt any longer to ignore organized 
labor, resolved to meet organization with or- 
ganization. Efforts to this end began about the 
year 1900. The various branches of industry 
had had their trade organizations for the pur- 
pose of promoting the general interests of busi- 
ness and improving relations among themselves, 
but had not given especial attention to concerted 
action in dealing with labor unions. The Na- 
tional Association of Manufacturers was or- 
ganized in 1896, but had given its attention 
largely to questions of governmental policy and 
to ways and means for the extension of trade in 



SEPARATION OF LABOR AND CAPITAL ±qq 

foreign lands. It was not until the meeting at 
New Orleans in 1903 that the president of this 
association, Mr. D. M. Parry, sounded his 
famous call to arms for the organization of man- 
ufacturers to meet organized labor. 

In the meantime employers' organizations 
sprang up in San Francisco, Chicago, Denver, 
Dayton, and elsewhere. 

About this time the employer, realizing that 
the consumer was the balance of power between 
capital and labor, sought to enlist the consum- 
ers on his side and very largely succeeded in 
doing so through an organization known as the 
Citizens' Alliance. The organizations admitted 
non-producers to their membership and their 
shibboleth was the maintenance of law and or- 
der against the violence of trade unions. The 
tyrannical disposition and arbitrary methods of 
many unions having largely turned public sym- 
pathy to the employer, who was having a hard 
time keeping contracts and maintaining indus- 
try as a going concern, the ranks of the Citizens' 
Alliances filled rapidly, and with able business 
men to organize and lead them, they quickly 
became a powerful fighting force. 

In the meantime an effort was made to fed- 
erate these organizations on a national scale and 
D. M. Parry became president of the Citizens' 
Industrial Alliance, an organization intended to 
unify all these forces in the United States. 



HO FATE OF THE MIDDLE CLASSES 

Mr. Parry and other men of his way of think- 
ing denounced labor unions in unmeasured 
terms and the violence of their language was not 
approved by a large class of conservative manu- 
facturers, who believed in organization and con- 
certed action in dealing with labor unions, but 
deprecated the use of harsh terms which would 
further embitter capital and labor and render 
dealings between them still more difficult. 

But events of recent occurrence were driving 
the employers to desperation. In Colorado a 
cage loaded with non-union miners fell 1,400 
feet, apparently without cause, and although 
the coroner's jury, made up largely of union mi- 
ners, laid the blame on the machinery and rec- 
ommended more help for the engineer, others 
asserted that the catches had been provided for 
the hoist and the engineer had three helpers. 
The intimation was that a fiendish crime had 
been committed. The Citizens' Alliance of 

Idaho Springs, Colorado, was the result of an 
attempt to blow up the Sun and Moon mine, 
causing the death of a non-union miner. Mem- 
bers of the Citizens' Alliance took from jail 26 
union leaders who had been arrested on suspi- 
cion of complicity in the crime and expelled 
them from the town where their homes were, 
with threats of lynching if they returned. The 
secretary of the miners' union, A. D. Olcott, 
who was acquitted of complicity in the explo- 



SEPARATION OF LABOR AND CAPITAL m 

sion, became the victim of boycott by the Citi- 
zens' Alliance and was forced out of one job 
after another, former friends refusing even to 
lend him a rope to sink a shaft, after the decree 
against him went out. 

In May, 1904, at 2 o'clock in the mornings 
when 28 men, all but two of them non-union mi- 
ners, were standing on the railway platform at 
the Independence mine, a large quantity of 
dynamite was exploded under the platform and 
19 of the men were killed or wounded. Bodies, 
heads, arms, legs and ears flew in every direc- 
tion and pieces of flesh were blown 500 feet. 
Examination showed that the dynamite was 
exploded by a pistol, the trigger of which was 
attached to a wire which ran 400 feet to a place 
of hiding for the man who committed the 
crime. This fiendish outrage was charged to 
union men and it was asserted that documents 
were found showing complicity of the miners' 
union. The feeling against the miners' union 
was so intense that the sheriff and other officers 
supposed to be in sympathy with it were forced 
to resign. The Citizens' Alliance acted as a vig- 
ilance committee and practically took charge 
of Teller County. The governor was induced 
to send troops to the scene and proclaim martial 
law. Adjutant-General Bell, in full sympathy 
with the Citizens' Alliance, attacked a group of 
22 union miners, who were captured by two 



112 FATE' OF THE MIDDLE CLASSES 

companies of State troops after a brief resist- 
ance. Bell then hunted the remaining union 
miners like rabbits and captured or frightened 
away all in the county. Those captured were 
turned over to a committee of the Citizens' Alli- 
ance who investigated their cases and decided 
whether the prisoners should be deported or held 
for trial on the charge of complicity in the mur- 
ders. Those not held for trial were marched 
over the hills and made to leave the county. As 
a rule they left the State. 

In the latter part of June, Adjutant-General 
Bell was quoted by the Associated Press to the 
effect that he would expel all union miners from 
Colorado. 

During the excitement following the explo- 
sion the owners of a Colorado mine employing 
union miners were forced by pressure to dis- 
charge their men. This for a time stopped 
work in the mine. 

Thus violence was met with violence, boy- 
cott with boycott, ostracism with ostracism, ter- 
rorism with lynch law, and finally the series of 
anarchistic crimes and retaliations led to mar- 
tial law and the complete abolition of liberty in 
property and person for the entire class of union 
miners. 

Elsewhere there was not such extreme provo- 
cation and the use of violence by employers' 
associations or citizens' alliances was rare, but 



SEPARATION OF LABOR AND CAPITAL 113 

they used freely the labor union weapons which 
they had so vehemently denounced. Lockouts, 
boycotts and ostracisms were among the means 
employed to fight labor unions or employers 
dealing with them in San Francisco, Denver 
and Chicago. Chicago had extreme provoca- 
tion in the stopping of funerals by union team- 
sters, and the employers' association of that city 
was strong and vigorous. When the laundry 
workers' union struck nine laundries, the em- 
ployers' association, under Mr. Job, organized 
the laundries and caused a lockout in practically 
all the establishments. The wage-fund being 
cut off, the laundry workers were impoverished 
and laundries suffered severely. Finally the 
open shop was established, but the workers got 
an increase of wages. 

Similar contests took place in other indus- 
tries, with the employers' association backing 
the employers. The general result was to es- 
tablish the open shop. 

The striking similarity in fighting methods 
of employers and laborers when organized is 
seen in these contests. In San Francisco there 
were some meat dealers who wished to continue 
their agreement with labor unions and use the 
union label. Through the influence of the em- 
ployers' association, the wholesale meat dealers 
shut off supplies from the independent dealers 
and refused to sell them meat until they took 



H4 FATE OF THE MIDDLE CLASSES 

union labels out of their windows and joined in 
the fight. In some cases wholesalers refused 
to supply restaurant keepers who insisted on 
dealing with the unions. 

The picketing of labor unions, which has been 
so much denounced, finds its counterpart in the 
use of detectives by employers' associations and 
"scab" labor has lived to see "scab" employers 
boycotted and forced into line by the employers' 
union. Union cards have been used by the Cit- 
izens' Alliance of Denver. 

This curious similarity of the fighting meth- 
ods of labor and capital has another remarkable 
manifestation in the recent use which labor has 
made of "government by injunction." This oft- 
denounced weapon of capital was used by labor 
unions in Denver and Omaha against the Citi- 
zens' Alliance and the aid of the courts was 
asked by labor unions during the butchers' 
strike at Chicago in July, 1904. 

The times seem to have demanded extreme 
measures by capital to meet the extreme meas- 
ures of labor and teach it a lesson. The em- 
ployers, flushed with success and entrenched be- 
hind compact organizations, have now to learn 
the same lesson. 

Allusion has been made to a conservative 
class of employers, who organized for defense 
against organized labor, but prefer pacific 
methods. Notable among these are the stove 



SEPARATION OF LABOR AND CAPITAL -±±5 

founders, the Illinois coal operators, the news- 
paper publishers, the book and job printers un- 
der the name of Typothetae, and the Chicago 
Metal Trades Association. 

The stove founders, as individual concerns, 
formerly had to deal with moulders' unions fed- 
erated in a national organization. A strike at a 
single foundry was supported by all the union 
moulders in the United States, and could be 
sustained for a long time. The striking mould- 
ers received pay from the treasury of their na- 
tional organization. 

In such a contest the single foundry was at a 
great disadvantage. Employers saw that the 
only way to equalize the contest with a national 
labor union was to organize the founders on as 
large a scale. This plan was adopted and proved 
to be effective. Now the stove moulders, if they 
strike at all, must strike all along the line. 
Once a year a committee of founders meets a 
committee of moulders to fix a scale of pay for 
the ensuing twelve months. If they fail to 
agree and a strike results, it is a general strike. 
All the moulders are out of work and there is 
no immense fighting fund to draw on. If there 
is one, it soon vanishes. Meantime the found- 
ries are paralyzed and the employers suffer. 

Under these circumstances, with both sides 
thoroughly organized, both are slow to provoke a 
contest. The result is increasing conservatism 



HQ FATE OF THE MIDDLE CLASSES 

and a better understanding between capital and 
labor. 

Once a year the Illinois coal operators meet 
to fix a scale of prices and a similar course is 
pursued by the coal miners and the operators of 
the Birmingham region. 

Mr. Ray Stannard Baker published in Mc- 
Clure's Magazine for July, 1904, a notable ar- 
ticle on the contest between organized capital 
and organized labor and a number of the facts 
mentioned in this chapter concerning the Colo- 
rado contest and the employers' associations are 
recounted in detail in that article. 



Chapter XIV 
THE STRUGGLE OF CLASSES 

Labor and capital will get together, just as surely 
as co-operation succeeds conflict in every phase of 
human endeavor. 

Labor and capital, shooting at each other, hit the 
consumer. The consumer is on the firing line with- 
out a gun. 

UP to this time we have dealt with the work- 
ings of industrial combinations in a sim- 
ple form. We have been considering combina- 
tions of capital, without regard to labor, because 
they all employ labor and do not treat it as a 
partner. The workingman does his work and 
draws his pay and gives himself no especial con- 
cern about the success of the business so long as 
wages, hours and other conditions are satisfac- 
tory. 

ISTow comes a new kind of combination in 
which labor plays an important part. Organ- 
ized labor has begun to league itself with or- 
ganized capital. This adds a new factor to the 
problem and contributes a new element of 
strength to the institution which is revolution- 
izing industry. The world has concerned itself 
a great deal about the abuse of power by or- 
ganized labor and unified capital, but no one 
seems to have lost any sleep about the danger 
that is sure to arise from the w T ell-nigh irresisti- 



H8 FATE OF THE MIDDLE CLASSES 

ble power which the union of these organized 
classes will confer upon the leader who is power- 
ful enough and wise enough to command such 
an army of industry. 

Following is an extract from a Chicago dis- 
patch to the Associated Press, on June 15, 1905 : 

"John 0. Driscoll was made to-day the chief 
witness before the grand jury and recited what 
he called the history of the dealings between 
employers and union labor. Driscoll told how 
the coal teamsters and coal team owners had 
made the first joint trade agreement, which 
provided that the owners should employ only 
members of the coal teamsters' union, and that 
the members of the union should work for no 
employer not a member of the coal team owners' 
association. The effect of this arrangement, the 
witness declared, was to force every coal wagon 
owner into the coal team owners' association and 
every coal wagon driver into the teamsters' 
union. The owners are behind this provision 
that barred union men from working for men 
not members of the association, prevented union 
drivers from driving independent coal wagons, 
and raised the cartage rates of coal from 30 to 
50 cents a ton for short hauls and to as high as 
$1 a ton for longer hauls." 

Similar alliances have been made between em- 
ployers' combinations and the trades unions of 



THE STRUGGLE OF CLASSES hq 

New York, Chicago, Detroit, St. Louis, Den- 
ver, Atlanta and other cities. 

The United States Industrial Commission 
reports a case in which the United States Gov- 
ernment was mulcted of a large sum in the con- 
struction of a public building at Chicago. Con- 
tractors who were members of the double com- 
bination of builders and trade unions put in 
bids for the construction of the buildirg and 
the award went to the lowest bidder. Appar- 
ently everything was regular, but subsequent 
events made dissension in the combination and 
one member turned State's evidence, so to speak, 
on the others. Evidence before the commission 
showed that the members of the contractors' 
combination met in secret and submitted to each 
other the estimates they had made on the Gov- 
ernment building. The man who made the low- 
est estimate was conceded to have won and he 
was accorded the right to put in the lowest bid 
and secure the contract, but was required to add 
twenty per cent, to his original estimate, and 
this extra sum received from the Government 
was divided among the other contractors in the 
combination. 

An attempt to mulct the Methodist Book Con- 
cern in the same manner was discovered. The 
architect rejected the bids as too high and mem- 
bers of the combination became restless because 
they believed the restrictions that bound them 



120 FATE OF THE MIDDLE CLASSES 

were injuring their business. One member put 
in a straight bid. This led to quarrels, the re- 
sult of which was the discovery of the methods 
by which the United States Government had 
been held up. 

A curious story is told of a builders' combina- 
tion, said to have existed in another city, which 
adopted the average price as the one entitled 
to secure the contract. Builders in the combi- 
nation met secretly and submitted their bids 
to each other before bidding for the investor. 
All the estimates were added together and the 
average was taken. The bid nearest the aver- 
age was the winner and the man who made it 
was allowed to put in the lowest bid to the in- 
vestor. His lowest bid was the average, plus 
20 per cent, to be divided among the other bid- 
ders. 

Since the Industrial Commission completed 
its report New York City has suffered severely 
from a combination of this kind in the build- 
ing trades. During the year 1904 the news- 
papers of the metropolis printed a great deal of 
evidence going to show that the cost of building 
was arbitrarily increased to a very great extent 
by the exclusive combinations of building con- 
tractors and trades unions. In many cases, re- 
ported by the Industrial Commission, the dou- 
ble combinations were soon broken up by inter- 
nal dissensions, but new combinations of the 



THE STRUGGLE OF CLASSES 121 

same kind keep springing up. There is some- 
thing persistent in this new institution, just as 
there is in the simpler form of combination 
among capitalists, and it will not down at the 
bidding of the courts. In Chicago, where Mr. 
Driscoll reports such an exclusive alliance be- 
tween the employers and uniony of the teaming 
interests, there is a court decision little more 
than a year old, which holds such combinations 
to be conspiracies in restraint of trade and de- 
clares the guilty parties to be punishable also 
under the criminal law. 

As yet combinations of capital and labor are 
not very numerous, but there is everv indica- 
tion that they will be. Xothing is more certain 
than that organized labor and unified capital 
will get together. Peace follows war and co- 
operation succeeds conflict everywhere. 

There is a general tendency to joint agree- 
ments between organized labor and organized 
capital. It is a little slow, but progress is 
steady in this direction. 

Finally a stage is reached where employer and 
wage worker agree upon the scale of wages, the 
hours and the conditions of labor, for a year, or 
a term of years. At this point it dawns on 
them that they have the power to fix a price 
which the consumer must pay. Their primary 
object is to fix a price that will yield a living 
wage and a fair return to capital. Having 



122 FATE OF THE MIDDLE CLASSES 

learned how to do this, they seem to be masters 
of the situation, and the temptation is strong to 
abuse the power to raise wages and profits, 
which the consumer must pay. The consumer 
is unorganized, and though he complains, he has 
to submit. Where unified capital and unified 
labor co-operate in the control of production, he 
is powerless to resist — as powerless as an un- 
organized mob would be between two armies 
that are organized like pieces of machinery and 
directed by master minds. 

At this point it will occur to the reader to 
inquire whether the object of the regulation of 
production which has been held to be essential 
to continuous prosperity, is not to secure such 
prices as will afford a fair profit to capital and 
a living wage to labor. What objection, then, 
can be made to a combination of capital and 
labor for this purpose? The objection is not 
to the combination per se, or to fair prices. It 
is to the abuse of the power so secured. This 
abuse may consist in an interference with the 
right of other men to labor or to employ their 
capital as they see fit, or it may consist in rais- 
ing the price of the combination's product above 
the fair profit and the living wage. Three par- 
ties have equities in the price — the capitalist 
and the laborer who produce the article, and the 
consumer who pays for it. If the consumer 
does not pay enough, the capitalist and the 



THE STRUGGLE OF CLASSES 123 

laborer suffer. If they exact too much, the con- 
sumer suffers. 

I am aware that the immediate causes which 
fix the price of an article are supply and de- 
mand, and some economists go so far as to say 
that cost of production has nothing to do with 
price. But every one knows that if the price is 
below the cost of production, labor and capital 
will be diverted into other industries, the sup- 
ply will be cut down and the price will go up ; 
so it is true in the long run that cost of produc- 
tion is the determining factor which fixes the 
price. We may then safely hold that the price 
contains three equities — one for labor, one for 
capital and one for the consumer. As the price 
will not remain long below the cost of produc- 
tion, because capital and labor will seek other 
employment, so price will not remain above the 
sum which the consumer can afford to pay, be- 
cause he will either use less of the article or 
find a substitute and the demand will fall off, 
with the inevitable result of a lower price. 

These processes of adjusting the price are 
slow, so slow that some people overlook them 
altogether, and while this slow adjustment is 
pending there is much loss and suffering on the 
part of producer or consumer, according as the 
price is too low or too high. 

We have seen the cause of low prices, and the 
regulation of production was found to be the 



124 FATE OF THE MIDDLE CLASSES 

remedy for that condition. We are confronted 
here with the opposite status when prices are too 
high and kept so by the arbitrary action of a 
oiew kind of combination— labor and capital 
federated. Combinations of capital have done 
the same thing, but with organized labor added 
to the compact, the power to demand its own 
price is immensely increased, and the danger 
from abuse of power immeasurably heightened. 
As a matter of fact, such double combinations 
have gone to this extreme in most cases that 
have come to notice. 

The producer with absolute power to fix the 
price of his product will sooner or later abuse it, 
and the consumer with the same power, will do 
the same thing. What society needs and will 
eventually provide is a check on both. 



Chapter XV 
ORGANIZATION OF THE CONSUMER 

The consumer will be forced to organize in self- 
defense, as labor and capital have been. 

Government will not do its duty without organiza- 
tion behind it. 

/^\F 29 millions engaged in gainful occupa- 
^^ tions in this country at the last census, 7 
millions were in manufactures and transporta- 
tion, which are more or less controlled by organ- 
izations of capital and labor. The other 22 mil- 
lions belong to classes little organized. About 
half are farmers and the others are engaged in 
such useful pursuits as merchandise, banking, 
insurance, the professions, and domestic or per- 
sonal service. 

There is some organization among bankers, 
insurance men and merchants, but as such, and 
not as consumers. All of the 22 millions, in- 
cluding the farmers, are on the consumer's side 
of manufactured goods and on the consumer's 
side of transportation, which adds two billions 
a year to the cost of the commodities consumed 
in this country. 

In the last analysis, every man is a consumer 
of most things, and if a producer at all, is a 
producer of but few articles. 

It is clear, therefore, that the consumer oc- 



126 FATE OF THE MIDDLE CLASSES 

cupies the strongest position of all the great 
economic groups. He has always some choice 
as to the articles he can consume, and in a com- 
paratively short time he can call new sources of 
supply into existence. The redundancy of 
capital and the surplus labor stand ready at all 
times to serve him, and never more so than when 
an attempt has been made to practice extortion, 
or when the warring forces of labor and capital 
are locked in deadly conflict and production 
ceases. These conditions make organization easy 
for the consumer. 

The manufacturer says to the merchant, 
"What do you care whether prices are high or 
low, so long as you make your percentage of 
profit? The higher the price the more your 
percentage will yield." 

The railroad traffic man says to the merchant : 
"What do you care for lower rates, so long as 
your competitor pays the same rate ? What in- 
terest have you in cutting down our revenue 
when it does not add a penny to your profit ?" 

In the meantime where does the consumer ap- 
pear ? 

When capital and labor are at war, the con- 
sumer is between the two fires, as we saw during 
the anthracite coal strike. While operators and 
miners contended with each other, the con- 
sumer shivered. When at length a settlement 
was made, the price of coal was increased and 



ORGANIZATION OF THE CONSUMER ^27 

the consumer was called upon to pay the differ- 
ence. He is the victim in their warfare and not 
less unfortunate when they make peace. 

The consumer then must organize or suffer, 
and he will not suffer long before he begins to 
look for the remedy. The object lesson is be- 
fore him, and he has already shown on several 
occasions that he is an apt pupil. 

Once in a while an extreme case like the coal 
famine arouses the mass of consumers to a sense 
of their danger. Then we hear conservative 
men and newspapers demanding that the Gov- 
ernment take over the mines and the railroads. 

Public opinion moves with incredible swift- 
ness in the presence of danger, and if a better 
remedy is not agreed upon sooner, we may come 
to Government ownership ; but there is at hand 
a simple and effective remedy that involves no 
such risk as State socialism. It is in the hands 
of the people, who can quickly apply it without 
any help from the Government. This remedy 
is organization. 

The fate of the middle class, therefore, is in 
its own hands, so far as the abuse of power by 
the organized forces of capital and labor is con- 
cerned. Organization is the key to the situa- 
tion. 

I am not blind to the fact that organization 
means agitation, and heat and conflict. Neither 
do I conceal from myself the other disagreeable 



128 FATE OF THE MIDDLE CLASSES 

consequences of such a movement. In its early 
stages, especially, it will be hampered and beset 
by demagogues, who will inflame the minds of 
one class against another. These things must 
needs be. They are the unavoidable accom- 
paniments of every great movement, but the 
movement itself is of far greater consequnce, 
and is to be taken seriously. 

But in its finality, organization means peace. 
Organized government did not come but through 
fire and sword, yet at last it is the very essence 
of order, stability and peace. The stability of 
industry is coming gradually through a similar 
process. 

Nbw let us see the effect of organization on so- 
ciety as a whole. 

The groups engaged in production, distribu- 
tion and exchange are organized and the organi- 
zation of the consumer will complete the eco- 
nomic framework of the body politic. Now the 
body politic is not a fiction of the imagination. 
It is just as real as bodies of flesh and blood. 
Flesh and blood are its component parts. Men 
are the units of which it is composed and their 
destiny is bound up with the fate of the whole. 
If men degenerate the body politic falls into 
decay, and if the whole is in disorder the evil 
disease afflicts the human beings that compose 
it. We have but to mention war and famine to 
realize that this is vitally true. And since it 



ORGANIZATION OF THE CONSUMER ^29 

has been shown by all experience that men or 
classes that have power will oppress the men or 
the classes that have it not, the well-being of so- 
ciety as a whole and in all its parts requires pro- 
tection for every class. Human experience has 
demonstrated times without number that such 
protection is best assured by organization, and 
history shows that the organized classes have not 
only freed themselves from oppression, but have 
steadily risen in the scale of intelligence, effi- 
ciency and morality. With organization comes 
not only the conflict that makes men, but the 
contact, conference and attrition of mind that 
educate and uplift the race. 

The body politic is a great organism that 
works well or ill in proportion as its several 
parts are organized and developed for the per- 
formance of their functions. 

Government rests upon the framework of 
industry. Production gives it food and com- 
merce is its blood, but the nerves of politics act 
and react on all the organs of business. 

So long as society was a mass of people with- 
out classification, government was a loose and 
incoherent thing. Its checks and balances were 
feeble. Gradually stratification adds strength, 
and as the stratification advances and the segre- 
gated classes are organized, the checks and bal- 
ances of power become strong, self-acting and 
efficient. 



130 FATE OF THE MIDDLE CLASSES 



Chapter XVI. 

EVILS AND BEMEDIES. 

The remedy can not be administered against the 
will of the patient. Public opinion is an indispensa- 
ble factor, 

WHEN" the elements composing the popula- 
tion have been organized separately, they 
will be in position to co-operate actively and ef- 
fectively in all matters of common interest, 
whether for defense against impending danger 
or for the upbuilding of society. 

This work of co-operation is impracticable 
where there is no articulation of the classes, 
but when they have been severally organized and 
joined in one frame the action of society as a 
whole is made easy and certain. 

Under these conditions it will be a far more 
difficult matter to defy public sentiment and dis- 
regard the law. 

The organization of the consumer completes 
the articulation of society and with it we may 
look for results. 

Let us see the work which organization is 
called upon to perform. In order to realize this 
we will sum up the conditions briefly. 

The world's population is fast approaching 
the time when it will press hard upon subsist- 
ence if the present rate of production is not 



EVILS AND REMEDIES 131 

vastly increased. Our methods are so wasteful 
that we throw away in this country by reckless 
production enough to build homes for a million 
families a year. 

To stop this awful waste the necessity of the 
times has created the trust, now unfit for its 
task, but destined to be made fit by adversity 
for the regulation of production more nearly in 
accordance with the demands of consumption. 

With this machinery have come a new dan- 
ger and a new problem, the danger of great 
power abused, and the problem of controlling it. 

We have seen competition set aside by natural 
monopolies like railroads which have built up 
other monopolies by their discrimination. 

To this dangerous power of discrimination is 
added the immense power of patronage, through 
community of ownership, as dangerous as the 
boycott, but not so easily reached by law. 

In addition to all this, there has appeared, 
during the past decade, the most irresistible and 
the most dangerous form of combination ever 
invented, the federation of combined capital 
with organized labor, to the exclusion of capital 
and labor not in their combinations. 

Another danger is the peril to the investor 
from the flotation of watered stocks, by the 
great industrial combinations. These stocks are 
put on the market at inflated prices and sold to 
the public. After a few years of over-produc- 
tion a dividend is passed and the unfortunate 



132 FATE 0F THE MIDDLE CLASSES 

purchaser sees his property shrink to less than 
half the sum he paid for it. The common and 
preferred stock of the United States Steel Cor- 
poration shrank 470 millions in three years. 

Stocks are inflated like sponges until they are 
full of water, and in a short time the water is 
squeezed out. Afterward the process of expan- 
sion begins again. 

The ordinary investor can not understand the 
process, because he does not know what the 
controlling spirits are doing or intend to do. 
Naturally he gets squeezed. 

A consequence, perhaps worse than the loss 
to individual stockholders, is the effect on the 
public. Having no confidence in the stability 
of industrial stocks, they keep out of them, and 
thus the masses are divorced from the interest in 
the productive power of the country which they 
formerly had. 

These conditions are aggravated when cor- 
ruption is discovered in a great institution like 
the Equitable Life Assurance Society, which 
had enjoyed the public confidence for years and 
had come to be regarded as one of the pillars of 
finance. What has been discovered and con- 
firmed by official investigation in one case leads 
to the undefined but all-pervading fear that the 
leaven of graft extends to other great institu- 
tions of the same kind. This staggering blow to 
the public confidence at a time when the expan- 
sion of credit is fifty per cent, greater in pro- 



EVILS AND REMEDIES 13 3 

portion to the stock of money in the country, 
than it was seven years ago, despite the enor- 
mous increase of gold, has created apprehension 
which will take a general investigation of 
fiduciary institutions to allay. This shock to 
confidence, if not warded off by investigation, 
is calculated to handicap the vast machinery of 
credit, which, under the modern system of bank- 
ing and settlement by check, enables the country 
to make every dollar turn fifty dollars worth of 
trades in a year. After the panic of 1893 we 
saw credits contracted to a little more than half 
this ratio, and thus, for several years, the effi- 
ciency of money, which means the financial 
power of the country, was almost divided by 
two. 

Confronted by these grave dangers, what is 
the wise course for the country to pursue? 

The following measures are suggested. 
For the protection of investors : 

1. A general investigation and house cleaning of 
the great fiduciary institutions with punishment for 
the guilty. 

'2. Reform of corporation law to check fraud and 
over- capitalization in organizing companies. 

3. Criminal laws that will reach the corporation 
grafter. 

4. Compulsory audit by prescribed standard for 
corporations doing interstate business or offering 
stock to investors — results to be published. 

5. Compulsory publication of the kind and quan- 
tity of stock and bonds held by banks and fiduciary 
institutions. 

For the protection of consumers : 

1. Organization of consumers and shippers. 



134 FATE OF THE MIDDLE CLASSES 

2. Government control of natural monopolies, be- 
ginning with regulation of railway rates. 

3. Publicity of the earnings and expenses of na- 
tural monopolies, with an inspection of their accounts 
by Government experts who shall be bound by their 
oaths to report illegal transactions, especially dis- 
crimination, or combination with other natural mo- 
nopolies. 

As to the measures for the protection of the 
investor, it is immensely important that what- 
ever can be done to satisfy the public concerning 
its cherished fiduciary institutions, be done with 
as little delay as possible. Loss of confidence 
creates an atmosphere favorable to panic and in 
this matter no risk should be taken which can be 
avoided. 

The blazing light of publicity must be turned 
upon every spot where suspicion rests and the 
public interest demands the merciless exposure 
of wrong doing in high places. The first step 
to reform is for the country to vomit up the poi- 
son of graft which has sickened it. 

The punishment of the guilty is necessary to 
make reform real and lasting. The tone of pub- 
lic morals has been lowered by the respectability 
of graft and it is necessary to make it dan- 
gerous and disreputable in order to rescue the 
country from its debasing influence. 

The eradication of graft will minimize the 
dangerous power of patronage which has been 
referred to in a previous chapter. In that place 
the statement was made that it is impossible to 
prevent a group of men from patronizing their 



EVILS AND REMEDIES 135 

friends in business. The nature of the corpora- 
tion, however, sets some limits to this power ; a 
majority can not use the property of a minority 
to feather their own nests, without violating a 
principle which is recognized in the statutes 
that require municipal corporations to buy of 
the lowest bidder, after due notice to the public, 
and forbid officials dealing with themselves or 
their partners. Public opinion, especially since 
the exposure of graft in the management of the 
Equitable Life Assurance Society, will demand 
that the municipal laws on this subject be ex- 
tended to business corporations. 

It is, of course, possible to deliver patronage 
under legal forms, but they check its baneful ef- 
fects and hamper those who would abuse the 
power it confers. 

Other things are done by corporations which 
their stockholders would not do on their own ac- 
count. Many a man draws dividends that result 
from iniquitous transactions and he satisfies his 
conscience by the reflection that he is only a mi- 
nority stockholder and can not control. As a 
matter of fact such men make no effort to con- 
trol and they do not hesitate to buy the stock 
of a corporation, some of whose acts they do not 
undertake to defend. 

Corporation reform has long been needed in 
the United States. The limited liability of 
shareholders has led to abuses which make in- 
dustrial stocks the outlaws of the market. 



136 FATE OF THE MIDDLE CLASSES 

Investigation is needed to guide the framers 
of the laws that shall be passed. 

The question how far the States and how far 
the Federal Government shall control is one 
that requires great care and legal ability, but it 
offers no insuperable obstacle. Public policy 
demands this reform in order that public con- 
fidence in corporate industry may be restored. 
Graft and over-capitalization are the chief evils 
to be eradicated. 

In suggesting measures to protect the con- 
sumer, organization has been put before Govern- 
ment regulation of natural monopolies, because 
Government will not act efficiently in this mat- 
ter until there is a solidly organized body of 
public opinion behind it. We have a represen- 
tative Government and we can not expect our 
representatives to do a thing in spite of deter- 
mined and organized opposition, unless it is 
made clear to them that a wider circle and a 
more powerful organization demand it. 

The consumer has an overwhelming majority 
in any case between himself and the producer, 
but the consumer, as such, is practically unor- 
ganized. Despite his numbers he is helpless. 
Capital and labor here referred to are the pro- 
ducers. They also include those engaged in 
transportation, for the consumer pays the 
freight. As regards both, the consumer must 
organize or suffer. 

In this country comparatively little has been 



EVILS AND REMEDIES 137 

done by consumers on this line. Grain 
farmers in the West have succeeded with a co- 
operative elevator system, that protected them 
against charges they thought were onerous, 
which had been made by the established eleva- 
tor companies. In the Southern States, the 
Farmers' Alliance, before it went into politics, 
did a great deal to lift its members out of debt 
and rescue them from the clutches of the sup- 
ply merchant. In Georgia, a State where 
nearly all farmers were debt-ridden twenty years 
ago, a majority of the deposits in the 240 State 
banks are owned by farmers. The first great 
advance of the farmers in that State toward 
financial independence was due to the co-opera- 
tive work of the Farmers' Alliance between 
1888 and 1892. This work was felt all over the 
Cotton States and the better prices for cotton 
during the past few years, even in the face of 
large crops, was due partly to the fact that the 
farmers were financially able to hold the cotton 
on their farms and check deliveries. This was 
effected largely through an organization called 
the Southern Cotton Association, Which influ- 
enced planters to cut down the acreage of the 
new crop, while they held several million bales 
off the market. Thus, practically, they reduced 
the present supply and actually cut off the fu- 
ture supply. This double check on supply 
raised the price to ten cents, although the price 
of the same crop, when its magnitude first be- 



138 FATE OF THE MIDDLE CLASSES 

came known went down to six and a half cents. 

In England the organization of consumers on 
co-operative plans has been going on for a hun- 
dred years. It went through half a century of 
failure before its great career of success began. 
The dogged perseverance of the English and 
Scotch co-operators has resulted in success and 
far beyond the dreams of their pioneers. Nearly 
two million families are interested in the co- 
operative societies, which include wholesale 
and retail stores and factories. Their capital, 
which began with twopenny-a-week savings, has 
reached the enormous total of 117 millions, the 
sales 400 millions, and their profits, 45 millions. 

Although building and loan associations and 
co-operative banks have had large success in 
this country, little has been done in the organi- 
zation of consumers to supply their own wants 
by merchandise or manufacturing. 

But the genius of the American people has 
been quick to assert itself wherever organization 
was necessary for self-defense. The trades 
unions are a wonderful example of the capacity 
of the masses for organization, and the loyalty 
of the working man to his organization in the 
face of hardships and want is a splendid tribute 
to his manhood. The national extent of these 
organizations has given opportunity for the de- 
velopment of a high order of ability which we 
have seen in such men as John Mitchell. The 
occasional appearance of grafters among the la- 



EVILS AND REMEDIES 139 

bor leaders has called attention to the fact that 
there is a very large and influential class of 
them who are unpurchasable. 

American business men of the employing 
class were rather slow to begin a counter-organ- 
ization to protect themselves against the some- 
times arbitrary action of organized labor, but 
the capacity of the American for organization 
was splendidly manifested in the employers' 
associations which sprang up as if by magic 
wherever they were needed. 

The ability and shrewdness of the American 
manufacturer as an organizer was further 
manifested in the skill with which he mar- 
shaled thousands of consumers under his ban- 
ner. In order to do this, independent organiza- 
tions called by such names as "Citizens' Alli- 
ance/' "Law and Order League/' etc., were 
created. 

The lesson which the producer thus gave the 
consumer in the practical work of organization 
has not been lost. When the consumer comes 
to organize he will know how, and having 
created the machinery, he will understand its 
use. 

Consumers' leagues have not done much in 
this country, because their objects have been 
limited and the time was not ripe for a great 
organization of this kind. Heretofore there 
has been no general demand for protection 
against combinations of producers, but the swift 



140 FATE OF THE MIDDLE CLASSES 

movement of events and the tremendous devel- 
opment of combination among natural monopo- 
lies and collateral interests are fast carrying us 
to the point where the consumers will be forced 
to organize in self-defense. The discrimina- 
tions of railroads and the destructive competi- 
tion of monopolies fostered by railroads have 
made it impossible to do business in certain 
towns and in certain proscribed industries. All 
over the country we see freight bureaus and 
shippers' associations which have been created 
by the necessity of the situation. The State 
and Federal courts are constantly appealed to 
for protection to shippers. This litigation, in 
almost every case, is instituted by organizations 
which employ lawyers and pay the expenses. 

In such organizations of shippers, manufac- 
turers and merchants work side by side. Pro- 
ducer and consumer learn the lesson of organi- 
zation and defense together. Such lessons once 
learned are never forgotten. 

We have a situation in which necessity forces 
the organization of the consumer and one in 
which he is being trained to organization. The 
result is only a question of time, and from pres- 
ent indications, the time will not be long. 
There is a general and determined effort among 
producers to maintain combination prices and 
in many cases the prices are fixed regardless of 
supply and demand. 

This will force the consumer to act. 



THE FINAL MERGING OF CLASSES 141 

Given the organization of the consumer, we 
may rest assured that the necessary remedies for 
the abuse of power by the great corporations 
will be applied. Government never fails to act 
for the protection of a majority when the ma- 
jority is organized and demands protection. 

There are some Who think leaders will not 
be forthcoming with sufficient ability to manage 
such organizations, but history runs to the con- 
trary. Great ability comes with great emergen- 
cies. In the business of co-operation, Which 
was fought bitterly in England, the working 
men showed surprising shrewdness and capac- 
ity. More than that, they succeeded. 



142 FATE OF THE MIDDLE CLASSES 

Chapter XVII. 
THE FINAL MERGING OF CLASSES 

After segregation, integration and interdepend- 
ence — this is the real remedy for caste. 

WE may deplore the conditions which make 
the segregation of the classes inevitable, 
but we gain nothing by refusing to look the facts 
in the face. Until we do recognize a fact it is 
impossible to see anything behind it, and further 
progress in knowledge of the development is 
barred. While we thus stand blindfolded by 
our own obstinacy, the facts continue to de- 
velop and the world moves on. Our misfor- 
tune in this case is that we do not move with 
the current of progress and we waste our ener- 
gies trying to swim against the stream. 

When we frankly look the facts in the face 
we shall find that they have much more to say 
to us than appears on the surface. The segre- 
gation and counter-organization of the classes 
is a case in point. 

The counter-organization of capital and labor 
was deplored, but it came because it was nec- 
essary. Now the counter-organization of con- 
sumers as against producers is deplored, but 
it will just as certainly come. There must be 
a separate organization before a final balance 



THE FINAL MERGING OF CLASSES 143 

can be struck between the conflicting interests. 

Now mark the result. After segregation, 
integration. 

In the following chapter the tendency toward 
an interlocking, interlacing and blending of the 
interests of owners, employees and customers 
will be traced. We have heard much of mer- 
gers, but this is the great merger in which 
everybody who does anything useful to society 
will he interested. This is the real antidote for 
caste. For the study of this subject in the next 
chapter the author asks the thoughtful attention 
of the reader. 

The socialistic idea is general, even among 
well-informed economists, that the unification 
of industry will force the government to take 
over the property and functions of industry. 
That this does not follow is the writer's conten- 
tion, and just here is the parting of the ways 
between socialism and individualism. Up 
to this point they can agree on most things, but 
when it comes to the way of escape for mankind 
from industrial despotism on the one hand and 
socialism on the other, our teachers very 
strangely leave the socialist to blaze out the 
path. The socialist is ready to do so. He has 
his remedy, which is socialism, but I am per- 
suaded that there is a more excellent way. Let 
us not go blindfolded into the camp of the so- 
cialists because the path is difficult and the way 



144 FATE OF THE MIDDLE CLASSES 

obscure. Let us rather be willing to endure 
the hardships of pioneers and find our own 
way through this new territory. 



Chapter XVIII 

EFFECTS OF COMBINATION" ON THE 
INDIVIDUAL 

The larger the machine the better the man that 
runs it — and the more indispensable. 

THERE is much, concern about the effect of 
combination on the individual. The ini- 
tiative of the small dealer or manufacturer is 
lost when his business is merged or supplanted, 
and there is a frequently expressed fear that 
there will be no opportunity under the new sys- 
tem for young men to get a foothold in life. 

The idea is that combinations have reached 
such a colossal size, requiring such vast capital, 
that the boy who seeks to make his way by hard 
work and economy can never do much. His 
little hoard will not have any appreciable value 
as a working capital where millions are required 
to establish a plant and keep the business going. 

This theory is both plausible and depressing, 
but somehow boys keep coming to the front. It 
has been a great while since Andrew Carnegie's 
business was done in millions, but the boy 
Schwab, who had no money, found a place and 
a fortune in that establishment. This is the 
most notable case in recent years, but there 
were many others in that establishment, and 



^4-6 FATE OF THE MIDDLE CLASSES 

the case of Andrew Carnegie himself is even 
more remarkable for his time. There are thou- 
sands of such cases, and they seem to grow 
more numerous rather than otherwise. 

There will never be a time when capital can 
secure a satisfactory return without the serv- 
ices of men. 

Railways and other large corporations do 
their business and earn their profits through 
the exertions and the brains of salaried men 
who have worked their way up from the begin- 
ning. The capitalists who own the stocks dare 
not dispense with such men. They would be 
helpless without them. The tendency is to in- 
crease the compensation of such men, especially 
of the rare type which is equal to large tasks. 

Behold the event that comes to the salaried 
man of large capacity. Capital is constantly 
seeking new investments and when it can not 
find them it makes them by starting new enter- 
prises. Those enterprises can not succeed 
without good men to manage them and a new 
concern can not take a man from an established 
institution without offering him special induce- 
ments. These inducements often include both 
a liberal salary and a share in the profits. 

This policy, arising out of the necessities of 
new enterprises, has its effect on older concerns, 
who see the danger of losing the men who make 
their profits, and, if they are wise, fortify them- 
selves against such attacks by a liberal policy 



EFFECTS OF COMBINATION 147 

toward salaried men. This was a striking 
feature of Mr. Carnegie's policy. He grouped 
around him scores of bright young men who 
did much for the success of the company. 

As profits are more certain where business is 
conducted by large corporations with ample cap- 
ital, prospects of such contingent interests to 
salaried men are improved. While the rate of 
dividends may not be high, there will be fewer 
failures, and the average result will be good. 

The chance for laboring men who are con- 
trolled by unions is not so good because they do 
not have the freedom of salaried men. For 
that reason they seldom rise to important posi- 
tions in the business world. 

This is not due to the fact that they are 
working men, for salaried men, especially in 
their young days, work just as hard, if not 
harder, than members of trades unions. The 
real cause is the rule that prevents one member 
of a union from taking precedence of another, 
in position or pay when he has exceptional 
merit. This effect chills enterprise and fetters 
ability. If the trades unions become sufficiently 
enlightened, they may throw off these fetters 
without losing the benefits of organization. 
When they do, men will rise from their ranks 
to positions of wealth and influence as fre- 
quently as they do from the ranks of salaried 
men. 

On this subject it is interesting to read the 



148 FATE OF THE MIDDLE CLASSES 

testimony of Mr. Schwab, who entered Andrew 
Carnegie's service an obscure boy without money 
or influential friends, when the great ironmas- 
ter was already doing a business of millions. 
Mr. Schwab says in an article contributed to 
the North American Review: 

"To the working man the combination offers 
the most feasible scheme of industrial co-opera- 
tion ever presented. Without waiting for any 
one's invitation, he may secure a partnership 
in the combination for which he works by in- 
vesting his savings in the open market in the 
stock of the concern." 

He adds that the stock of the close corpora- 
tions which preceded the trusts was not so easy 
to buy, but now the ownership in great, consoli- 
dated enterprises has become tremendously en- 
larged and stockholders are increased in num- 
ber a hundredfold. 

It is necessary here to take cognizance of the 
fact that the plan of buying stock in the open 
market has some disadvantages in the present 
state of corporations. So many of them have 
watered stock, it fluctuates so violently and re- 
ceiverships and fraud are so common that the 
masses, who have no inside information, natur- 
ally, and wisely refrain from investing the im- 
mense sums they have in savings banks. In the 
course of time this difficulty will be overcome by 
the reform of corporation finance. Then the 
masses will invest freely in the industrial stocks. 



EFFECTS OF COMBINATION 149 

The United States Steel Corporation did sell 
stock to some o£ its employees at a figure consid- 
erably under the market price. Afterward the 
price of shares in the open market went far be- 
low the price the employees were paying. Since 
that time the market price recovered and again 
went above the price paid by the employees for 
preferred stock. 

"For the exceptional worker," says Mr. 
Schwab, "the advantages are even more mani- 
fest. In the first place his pay is larger and 
will continue to grow larger; and his services 
will, with each succeeding year be more largely 
sought for. Great enterprises depend to a 
much more pronounced degree on high-grade 
skill than do smaller ones. They must continu- 
ally create new trade in order to live and grow. 
They can only do this by having and holding in 
their service the best men. As the advantages 
they get out of such men are scattered over a 
much wider field, they can naturally afford to 
pay better than the concern whose sphere is 
limited." 

Referring to the poor chance such men had to 
get into a partnership or a close corporation, 
except in the case of unusually liberal employ- 
ers, Mr. Schwab adds: 

"It remained for the system of combination 
to make the scheme general and to open up for 
young men of brains opportunities that hereto- 
fore have been closed to them." 



150 FATE OF THE MIDDLE CLASSES 

The testimony on this subject is not all one 
way, but Mr. Schwab seems to have reason and 
business experience on his side. It is well 
known that Andrew Carnegie pursued this pol- 
icy and believed in it, and up to the formation 
of the steel trust his was the most important 
industrial corporation in America. 

Labor as a mass is rising in power and its 
share in the fruits of toil is increasing. 

The census shows the average earnings of 

labor in manufacturing and mechanical pursuits 

in the United States to have been as follows in 

the last three decennial years : 

Average Earnings of Industrial Labor. 

(Men, Women and Children.) 

1880 $346.91 

1890 444.83 

1900 437.96 

The slight decrease in the 1900 average is 
due to reductions in the Southern, Middle and 
Pacific States. Elsewhere there were increases. 

There has been a very general increase in 
wages since the census year on railroads and 
among manufacturers. It is hardly to be 
doubted that there is a higher wage level now 
than there was in 1890. 

Fortunes are still made by speculation and 
by defrauding the public of its just share in the 
returns of public utilities, but the time is com- 
ing when the unearned increment will go to the 
public instead of enriching franchise grabbers. 



EFFECTS OF COMBINATION 151 

The work of education in that line has begun 
and will inevitably bear fruit. 

In the meantime the mass of labor forges its 
way step by step. The progress has been slow, 
but in the last quarter century its results are 
important, as regards both wages and labor's 
share in the control of industry. Little by little 
capital is being driven to concede labor a 
voice in determining the conditions under which 
it works and the amount of its compensation. 

In other words, the control of industry is 
passing inch by inch from the few to the many. 
Democracy's age-long struggle in politics is 
made over again in industry. 

There is also a tendency of the masses to rise 
to competence. Of nine billions in American 
banks, three billions are in savings banks. One- 
third of the quick capital of the country belongs 
to the humblest of all capitalists. This vast 
sum belongs to the working people and the mid- 
dle class. These two classes make up the bone 
and sinew of the country. ■ The middle class 
also has a great deal deposited in other 
banks. All the farmers not among the very 
poor belong to the middle class. In some States 
the farmers own half the bank deposits. This 
statement is made for Georgia by Robert E. 
Parke, Treasurer and Ex-Officio Bank Exam- 
iner. 



152 FATE OF THE MIDDLE CLASSES 

If we take the deposits by the middle class 
and the working people in savings banks and 
other banks, we may safely assume that they 
make half the total of all bank deposits in the 
United States. 

They have half the transferable wealth of the 
country and of the more or less fixed capital 
they own an immense share. While the larger 
factories are owned principally by capitalists, 
there is a considerable element in manufactures 
known as "hand trades" which belongs to the 
masses. The census gives the total value of 
these products as $1,183,615,478, which is 9.1 
per cent, of the whole manufactured product 
of the country. 

To the middle and lower classes we may as- 
sign at present almost the whole farm property 
of the United States. 

Then there are the homes of the people. Un- 
fortunately there is a tendency toward renting, 
but at present 35 per cent, of the people in the 
towns and cities own their homes. 

On the farm sixty-five per cent, own homes. 

The masses invest little in the stocks of rail- 
ways and manufacturing plants because they 
lack faith in the management and the stability 
of business. When combination becomes con- 
servative and when it has learned to regulate 
production, industrial corporations will be 



EFFECTS OF COMBINATION 153 

steady earners of dividends. When the further 
safeguard of publicity in corporation accounts is 
added, the masses will begin to invest in stocks 
and bonds of railways and factories. The 
three billions in savings banks, invested in rail- 
road stocks, would control most of the mileage 
of the United States. The hoarding of these 
investments in banks is unwholesome, and the 
transfer of it to industry will work a revolution 
in public sentiment. No politician would be 
heard crying, "Destroy the Trusts" if he knew 
that half the voters had their savings invested in 
the stock or bonds of those corporations. 

In his book on Trust Finance, Dr. Edward 
S. Meade shows that when speculative promo- 
tion is eliminated by law, industrial securities 
will be issued on an investment basis and will 
be sought after by the investing public when 
they are deserted by speculators. At present 
the suspicion of industrial stocks limits the sup- 
ply of desirable investments, and the supply be- 
ing small in proportion to the demaiid, the price 
of available investments rises and the net return 
to the investor falls. Thus nine leading railway 
stocks which yielded an average return of 7.9 
per cent, on the market price in 1872, only gave 
a return of 3.3 per cent, in 1901. He mentions 
trust stocks amounting to two billions which are 
not available for investment because they are 



154 FATE OF THE MIDDLE CLASSES 

organized on a speculative basis. These se- 
curities on an investment basis, he thinks, would 
capitalize at $775,000,000, yielding five per 
cent, dividends after passing half the net earn- 
ings to surplus reserve. When the speculative 
industrial stocks have been reduced to a basis of 
sound finance they will swell the volume of in- 
vestment securities and bring the price down. 
This will raise the net return on conservative 
investments and make them more tempting to 
the public from the rate of return as well as 
from considerations of security. The seven 
millions of depositors in savings banks who are 
content with three to four per cent, interest, 
will transfer to industrial stocks a large part of 
the three billions they have hoarded when they 
become convinced that manufacturing corpora- 
tions paying five per cent, are as honestly fi- 
nanced and as wisely managed as the savings 
banks. 

Thrift will increase with a larger average re- 
turn and the capital of the middle classes will 
grow even more rapidly than it does now if the 
people feel sure of five per cent, where they get 
three and one-half. 

The law guards jealously the savings of the 
masses in the banks and it will guard them with 
equal jealousy when invested in the productive 
industries. The increase of stockholders of this 
class will be an element of safety to the corpora- 
tions, because laws will be strict in proportion 



EFFECTS OF COMBINATION ^55 

as the investors are humble and inexperienced. 
The increase of stockholders will add another 
element of safety in the quietus it will put upon 
the mischievous activity of anti-corporation poli- 
ticians. 

Organized labor will be more conservative 
in attacking corporations when it comes to pass 
that working men are largely interested in the 
profits. Democracy will successfully attack the 
problem of control from two opposite directions 
at the same time, on the one side through collec- 
tive agreements between labor and capital, and 
on the other through ownership of stock. 

In spite of this capitalists will find a more 
comfortable atmosphere than they do now. 
They will have to defer something to thousands 
of small stockholders, but organized labor will 
have to do the same thing. There will be less 
anarchy in industry; less violence and duress 
by labor unions and employers' associations. 

Little by little the wage-earners will become 
stockholders. Then labor and capital will 
largely be one. Wage-earners own the bulk of 
savings-bank deposits. Through organization 
they could place their savings in large blocks of 
stock, which eventually would become the bal- 
ance of power. If this is considered visionary, 
it must be remembered that savings banks now 
invest their money in securities. Evolution 
would naturally make the investment direct, 



156 FATE 0F THE MIDDLE CLASSES 

with the incidental benefits of control. The 
only obstacle is lack of business capacity on the 
part of wage-earners. This obstacle would be 
removed if their dead-level plan were aban- 
doned. 

The fact that wage-earners have native busi- 
ness ability which develops with experience and 
rises to the height of great affairs is fully dem- 
onstrated by the history of co-operation in Eng- 
land and Scotland, where concerns doing an im- 
mense business are ably and successfully man- 
aged by working men. 

Those who conclude that combination leaves 
no escape from state socialism have not begun 
to fathom the possibilities of industrial democ- 
racy. The popularization of control in indus- 
try will come about naturally, without sudden 
changes, but eventually the sum of the change 
will be radical. It would be startling to us, 
bred under the old regime, if the veil of the fu- 
ture could be torn away, revealing a republic 
of industry composed of federated industries, 
each with local self-government, but all leagued 
together for certain general purposes. 

The term republic of industry is used with 
regard to the control of industry only — not in a 
political sense. The effect of these changes on 
the forms of government is a separate subject. 

These generalizations have been built up little 
by little on the facts presented in this book and 
on many others not brought within the compass 



EFFECTS OF COMBINATION 157 

of so small a work. The facts will not be se- 
riously questioned, but the generalizations may 
not be accepted so easily. The mind is so con- 
stituted that it does not take readily to radical 
changes. Still, change has been the invariable 
rule in the evolution of society. It is a far cry 
from feudalism to twentieth-century civilization. 
Sir Knight would have been dazed and dumb- 
founded if he had been picked up and dropped 
into a world like this. Nevertheless, he could 
not prevent the change that has come and no one 
regrets it. Very likely in the era I have pic- 
tured there will be as little regret for the prog- 
ress beyond present conditions. 



158 FATE OF THE MIDDLE CLASSES 



Chapter XIX 

THE LIFT OF THRIFT 

It is self-help which makes the man — William E. 
Gladstone. 

THE nineteenth century witnessed a world- 
wide uplift of the toiling masses by 
thrift. In the last fifty years the poor and 
helpless have learned how to help themselves. 
Without money or credit, they have amassed 
money by the billion and their credit is equal 
to the best. Whole districts that were in ab- 
ject poverty, debt-ridden and tormented by 
usurers, seeking relief for their despair in drink, 
have become independent, prosperous and well- 
ordered communities, with beautiful, well-kept 
and well-stocked farms, smiling villages and 
happy people. Relief has come to the middle 
classes, the workingmen and the poor peasants 
in ways that were never known before. All 
this was done by organized self-help, under the 
name of Co-operation. 

It is an inspiring story that G. J. Holyoake 
tells of that little group of twenty-eight work- 
ingmen at Rochdale in 1844 : 

"No avenue seemed open to any human eye by 
which capital could come to workmen; no telescope 
could reveal it on the whole horizon of industry. 



THE LIFT OF THRIFT 159 

The pioneers had no funds, nor had they any credit. 
Money lenders never looked in their direction, nor 
could they hope for gifts; philanthropists were 
scarce in workmen's quarters. Plainly there was no 
help save by creating capital; and there was no 
method of doing this except by collecting a few shil- 
lings to buy some provisions wholesale, sell them to 
each other at shop prices and save the difference. To 
many this has seemed ridiculous humility, but it was 
the only form of self-help open to them, and honest 
self-help is never ridiculous. Thus was discovered 
the art of creating capital by those who had none." 

These twenty-eight men started by laying up 
four cents a week, and it was a long time be- 
fore they had gotten together the $140 on which 
they began business. Oil its forty-fourth anni- 
versary the society which began with nothing 
ahead, of capital or credit, had 11,223 mem- 
bers, and a capital of $1,700,000 ; the sales that 
year were $830,000, and the net profits $165,- 
000 ! 

That was the beginning of the great co- 
operative movement among the workingmen of 
England and Scotland which grew until at the 
end of sixty years it had two million members, 
a capital of 117 million dollars, sales of four 
hundred millions, and profits of forty-five mil- 
lions ! 

What this movement of the Equitable Pi- 
oneers did for the working classes of England 
and Scotland, the Peoples' banks of Schultze did 



160 FATE OF THE MIDDLE CLASSES 

for the towns-people and the "Raffeisen loan as- 
sociations for the poor peasants of Germany. 
By like means Luzzatti lifted the poor of Italy. 

Bismarck, who failed in his attempt to reach 
the same end by State help, persecuted Herr 
Schultze, who became the apostle of self-help in 
Germany. Schultze amplified the principle of 
the joint liability of two or three as security for 
loans, which the Scotch banks had applied in 
their "cash credit." Every member of his peo- 
ples' bank was liable for all its debts. As a 
saving feature, he put the management in the 
hands of the stronger members, but no man 
held more than one share. All being liable for 
the indebtedness of every member, each debtor 
was watched, coached and encouraged by all the 
shareholders. 

These banks spread through Europe, and at 
the end of thirty-six years from the founding 
of the first, Dr. Schmidt, of Vienna, estimated 
the total number of all such institutions at 
4,500, with 1,500,000 shareholders, and annual 
business amounting to $2,250,000,000 ! 

When Raffeisen began his work for the poor 
peasants, Western and Southern Germany was, 
to use the words of Henry Wolff, "a usurer's 
hell." Debt-ridden and harried by shylocks, 
with cottages and farms falling into decay and 
cattle mortgaged, the poor farmers were in ab- 



THE LIFT OF THRIFT iQl 

ject, poverty-stricken misery. Now Wolff, Leon 
Say, Laveleye, Rostand, and the Hungarian Pro J 
fessor Dobransky, all bear testimony to the 
wonderful redemption. 

Shy locks have lost their grip, debts have been 
paid, and happy independence has taken the 
place of the misery of poverty and the slavery 
of debt. 

Most significant of all is the testimony of the 
sober economist, Say : 

"All these wonders I have seen," said he, "are 
the wonders of private initiative and decentral- 
ization. It is private initiative, it is the decen- 
tralization of credit which is the dominating 
cause of all this progress in wealth." 

"The moral results," said Rostand of the peo- 
ples' banks in Italy, "are to my mind superior 
to the material." 

Priests in Germany and Italy have borne re- 
markable testimony to the effects of these so- 
cieties, and the Catholic Church has established 
a number of Raffeisen associations in Italy. 

Besides these fruits of co-operation, thrift has 
piled up in savings banks for the masses of 
European countries seven billions of money, 
which stands between them and poverty. 

Thrift has done its work in the United States 
by different methods. The building and loan 
association is the only conspicuous success in 



162 FATE 0F THE MIDDLE CLASSES 

co-operation, unless it be the work of the farm- 
ers' associations. The American, with high 
wages and large liberty, does not feel the need 
of co-operation. He puts his money in a sav- 
ings bank, buys a home or a farm, or establishes 
himself in some small business. We have 
seven millions of savings bank depositors and 
two-thirds of our farmers are proprietors, while 
the product of the independent artisans in hand 
trades exceeds a billion a year. 

When we really take up co-operation in 
America it is likely to be on a large scale. 

The working people and the middle classes of 
the United States have accumulated in savings 
banks and elsewhere enough money to buy out 
the whole producing machinery of the country. 
By organization they could buy and control any- 
thing in America. 

In the savings banks alone they have enough 
money to build the Panama canal ten times 
over. While the industrial stocks continue to 
be unsafe investments, they might buy as much 
of the canal as the government would let them 
have, and furnish the government with its part 
of the money on bonds. This would make it an 
American enterprise in the best sense. 

During the last half century the toiling 
masses of Europe and North America learned 
two great lessons : Self-protection and self-help ; 



THE LIFT OF THRIFT 163 

self-protection through organization and self- 
help by thrift. 

Through organization they have improved 
their relations with capital, made themselves 
more independent, raised the level of wages, and 
vastly ameliorated the conditions of toil. 
Through self-help by thrift, eighty million per- 
sons in Europe and the United States have 
erected a bulwark against poverty and now have 
in savings banks ten billions of dollars. Even 
in poorly paid Europe these depositors average 
$101, and in the United States, $418. 

As yet the work is that of individuals. The 
magic of combination, which has worked won- 
ders of finance among capitalists, has hardly 
touched the vast resources of the masses. When 
they learn the lesson of organization well enough 
to combine their immense wealth, the results 
will be beyond computation. Thrift has made 
these eighty millions free, and the liberty of 
independence opens to them new fields with 
possibilities so dazzling that there is danger of 
intellectual intoxication from the sheer ex- 
hilaration of the prospect. 



Ig4 FATE OF THE MIDDLE CLASSES 

Chapter XX 
POLITICAL CHANGES 

It is impossible to have an industrial revolution 
vnthout political change. The good of society de- 
mands the protection of every class and this can only 
he assured by securing to each such voice in govern- 
ment as will check and eventually eradicate that 
worst of all tyranny — class domination. 

HERBERT Spencer foreshadows the articu- 
lation of society by the jointing together 
of the organized classes in the political body. 
The tendency toward differentiation, organiza- 
tion, and articulation of the voting mass is un- 
mistakable. Industrial and social causes sepa- 
rate the voters into classes and the classes when 
organized and articulated together will make the 
framework of government. As illustrations of 
this see what is going on in political parties. 
One man is put on the ticket as a concession to 
the labor vote, another as a representative of 
the farming class, and another as a manufac- 
turer. This is an instinctive recognition of the 
fact that labor as such, farmers as such, and 
manufacturers as such, are entitled to a voice in 
government. 

The instincts of humanity are profound and 
those who see nothing but demagoguery in sug- 
gestions of class representation have not looked 



POLITICAL CHANGE 8 165 

below the surface of things. This movement is 
in obedience to the unerring instinct of the race 
against the new form of tyranny — the class 
dominant. 

Class representation in government was es- 
tablished in England centuries ago when the 
guilds were given municipal power conjointly 
with power to regulate business in their respec- 
tive trades. This power they retained until 
they ceased to exist as important industrial fac- 
tors. 

These institutions have in them the element 
wherein history repeats itself. It has been 
true from the beginning of society that indus- 
trial institutions had a shaping effect on politi- 
cal institutions. 

There is between them a connection as close 
and intimate as that between the alimentary and 
nervous systems of the human body. The in- 
dustrial system nourishes the body politic, and 
the political system governs it. 

So long as the voice of government is strong 
or weak in proportion to the dominance of this 
or that class, the action of government will be 
vacillating. Some permanent form of class 
representation which will give a stable equilib- 
rium of forces is desirable and that is the nat- 
ural result likely to grow out of present condi- 
tions. 

The change in the industrial organization of 



IQQ FATE OF THE MIDDLE CLASSES 

a country affects the habits of thought in the 
people. In the trades unions working men are 
accustomed to certain habits of thought concern- 
ing the non-union man. To them he is a scab 
who should not be allowed to work among re- 
spectable wage-earners. In this way they run 
counter to the cardinal principle of industrial 
liberty. What effect will this idea have when 
it has become ingrained in the minds of a ma- 
jority of the working men ? 

If they come to be a controlling power in 
popular elections, it will have a marked effect 
upon the character of our political institutions. 
Then they will seek to elect to office men who 
will support their contention. 

Employers have at times been very intolerant 
of organized labor. Many of them have ex- 
cluded union men from their shops. In some 
cases they have boycotted other employers who 
employed union labor. 

Merchants, in their turn, have boycotted co- 
operative concerns and mail-order houses. 

The Farmers' Alliance was equally intolerant 
of the professional classes. They were opposed 
to lawyers, merchants, and capitalists. Banks 
were their especial aversion. 

There is hardly a class that has not used 
pressure of some kind upon other classes when 
their interests came in conflict. 

As the industrial organism becomes articu- 



POLITICAL CHANGE 8 167 

lated, the lines between the classes are sharply 
defined. They at present consider their in- 
terests conflicting and antagonistic. Eventually 
this spirit is likely to be overcome by the spirit 
of co-operation that is generated by collective 
bargaining and joint alliances. But for the 
present there is sharp antagonism and intense 
jealousy between the classes. 

The difference of social status adds to the dif- 
ficulty of overcoming this antagonism and for a 
long time to come it will be with us. 

That being true, it will affect political institu- 
tions. It will affect political institutions be- 
cause of the danger of tyranny from any class 
which happens to have a numerical majority in 
popular government. When one class is in the 
majority, others will suffer if there is not in the 
constitution of the government a provision for 
the assent of more than one class. The Farmers' 
Alliance did dominate the legislatures in some 
of the Southern and Western States for a short 
time and the effect on legislation was apparent. 
It was to some extent class legislation, and had 
the dominance of a single class been long con- 
tinued, the increase of class legislation would 
have been rapid. 

There has been in Congress much class legis- 
lation for the benefit of manufacturers and this 
has been possible because the manufacturers 
were solidly organized in a political party which 
undertook to perpetuate the tariff policy that 



168 



FATE OF THE MIDDLE CLASSES 



suited them and the working men in factories 
believed that protective duties tended to in- 
crease wages. Two classes being allied in the 
same interest, the legislators were enabled to 
fasten that system on the country. 

The temporary revulsion of sentiment, backed 
by the agricultural and consuming classes, was 
not long lived because the classes in favor of 
protection were well organized, strongly in- 
trenched, and ably led. The result of this 
policy has been to enrich the manufacturing 
class and to increase the wages of its working 
men, while the wages of farm labor remained 
almost at a standstill and the prices of products 
limited by world-wide competition continued to 
be moderate. These facts are cited to show that 
a class in the majority will use the power of 
government for its own advantage and very 
likely to the disadvantage of others. The only 
way to prevent this is to imbed in the constitu- 
tion the principle of the concurrent majority of 
classes which is described by John 0. Calhoun 
in his disquisition on government. 

Mr. Calhoun says on page 35 : 

"The necessary consequence of taking the 
sense of the community by the concurrent ma- 
jority is, as has been explained, to give each in- 
terest or portion of the community a negative 
on the others. It is this mutual negative 
among its various conflicting interests which in- 



POLITICAL CHANGES -\Q$ 

vests each with the power of protecting itself 
and places the rights and safety of each where 
only they can be securely placed, under its own 
guardianship. Without this there can be no sys- 
tematic, peaceful or effective resistance to the 
natural tendency of each to come into conflict 
with the others." 

Geographically we have the principle of the 
concurrent majority established in the United 
States Senate, which is the seat of conservatism 
in our government. This necessity of the assent 
of a geographical majority has a tendency to 
check class legislation, but not strong enough to 
be effective. It will not be effective for the pro- 
tection of all classes until the principle of class 
representation is introduced as a check against 
class legislation. In a measure this principle 
has been introduced in local government. The 
representatives of the labor element have been 
elected, as such, to seats in municipal bodies and 
State legislatures. In a few cases labor candi- 
dates have been elected to the mayoralty of cit- 
ies. In the United States Congress there have 
been representatives of the Farmers' Alliance. 
In the English Parliament and in the London 
city government working men have been repre- 
sented by such men as John Burns. 

Auxiliary voluntary organizations like the 
civic federation, which have a powerful influ- 
ence on public opinion and indirectly on govern- 
ment, are expressly organized so as to include 



170 FATE OF THE MIDDLE CLASSES 

class representation. This broad representation 
inspired confidence in the public mind and gen- 
erated a spirit of good feeling and mutual re- 
spect among the representatives of capital and 
labor thus brought into association. 

This result of class representation in the 
most conspicuous voluntary civic organization of 
the United States goes far to justify the conten- 
tion of Mr. Calhoun that such representation 
makes for fairness, peace and good morals. The 
same principle has been exemplified in the col- 
lective bargaining, joint conferences, and joint 
boards of capital and labor : 

The principle of class representation having 
been once firmly established in voluntary asso- 
ciations for industrial and sociological purposes, 
and its salutary results having been seen and ap- 
proved by the test of experience, as a natural re- 
sult, the same principle will be extended to 
governmental policy. Having taken hold of the 
public mind, which is always impressed with 
conspicuous examples of fair dealing, it will by 
degrees enter into the constitution of govern- 
ment. 

The most marked class divisions of the 
United States are those of capital and labor. 
In Mr. Calhoun's time they were the agricul- 
tural and manufacturing classes, which are still 
of immense importance. 

The third party ever present with labor and 
capital is the consumer, who pays the price 



POLITICAL CHANGES XI 1 

which results when the wage scale is fixed and 
the profit of capital is added. The logical evo- 
lution of class representation in government 
would recognize these opposing interests. 

The instinctive recognition of this classifica- 
tion of capital, labor , and consumer is seen in 
the popular dictum so universal since the coal 
famine of 1902, that there are three parties to 
every strike and every contest between capital 
and labor. It was the force of public opinion, 
roused by the sufferings of the third party, the 
shivering consumer, that finally brought the an- 
thracite strike to a settlement. 

When capital and labor were unorganized the 
consumer was not appreciably affected by the 
action in any one case and price was regarded 
as the sole consequence of economic laws; but 
when coal miners and coal operators act as one 
man, with the result of a coal famine and inde- 
scribable suffering by innocent parties, the part 
which society as a whole has in every contest 
becomes so clear that no man can fail to see it. 

If things were allowed to drift, a condition 
might be reached where Government would be 
compelled to take over the coal mines for the pro- 
tection of society. The sufferings of the con- 
sumers during the coal famine drove many con- 
servative journals to advocacy of such a course. 
To prevent such socialism there must be some 
check on these contests and the best means avail- 
able are found in the joint agreements which 



172 FATE OF THE MIDDLE CLASSES 

have steadily grown in favor of late. Event- 
ually some community of ownership by wage- 
earners would help. 

That government can not remain inactive in 
case of famine is evident. That its action 
should be wise and fair is essential, and this 
can only be secured by class representation in 
government. 

The political effects of such representation 
are shown by Mr. Calhoun's remarks on suf- 
frage. He says : 

"Among the advantages which governments 
of the concurrent majority have over those of 
the numerical majority and which strongly il- 
lustrates their more popular character is that 
they admit, with safety, a much greater exten- 
sion of the right of suffrage. It may be 
safely extended in such governments to univer- 
sal suffrage; that is, to every male citizen of 
mature age, with very few ordinary exceptions ; 
but it can not be so far extended in those of the 
numerical majority without placing them ulti- 
mately under the control of the more ignorant 
and dependent portions of the community. For 
as the community becomes populous, wealthy, 
refined and highly civilized, the difference be- 
tween the rich and the poor will become more 
strongly marked ; and the number of the ignor- 
ant and dependent greater in proportion to the 
rest of the community. With the increase of 
this difference, the tendency to conflict between 



POLITICAL CHANGES 173 

them will become stronger ; and as the poor and 
dependent become more numerous in proportion, 
there will be, in governments of the numer- 
ical majority, no want of leaders among the 
wealthy and ambitious, to excite and direct 
them in their efforts to obtain the control. 

"The case is different in governments of the 
concurrent majority. There, mere numbers 
have not the absolute control, and the wealthy 
and intelligent, being identified in interest with 
the poor and ignorant of their respective por- 
tions or interests of the community become their 
leaders and protectors. And hence, as the lat- 
ter would have neither hope nor inducement to 
rally the former in order to obtain control, the 
right of suffrage, under such a government, may 
be safely enlarged to the extent stated without 
incurring the hazard to which such enlargement 
would expose governments of the numerical 
majority." 

Mr. Oalhoun follows this with an argument 
to show that governments of the concurrent ma- 
jority tend to generate a conciliatory spirit 
among the classes, because the assent of all must 
be obtained and this makes it necessary to be 
conservative, fair and conciliatory. He com- 
pares this with the absolute rule of the numer- 
ical majority, which makes a part of the people 
dominate the remainder, without their consent, 
and oftentimes in a harsh and tyrannical man- 
ner, injurious to their interests. This engenders 



174 FATE OF THE MIDDLE CLASSES 

bitterness and makes men go to the extremes of 
slander and fraud in order to obtain political 
victory and secure control of the government. 
Such conduct in political affairs affects private 
morals and the poison spreads through the whole 
population. 

How prophetic this argument of the conditions 
which obtain in the great cities of the United 
States ! These conditions have arisen since Mr. 
Calhoun wrote his great work on government 
and the debasement of the electoral body in 
cities has come about with appalling swiftness. 
That political debasement has had its effect 
upon the citizen in ever-widening circles is clear 
from the rapid increase of crime and the shock- 
ing disrespect for law. Corruption has eaten 
its way into business life and society has been 
under the necessity of inventing a word for this 
new species of turpitude which we call graft. 

Those who deplore the stratification of society 
by class organization and counter-organization 
will have immense consolation if the class rep- 
resentation in government, which will be the 
consequence, shall have the effect of staying 
class legislation and corruption with the ulti- 
mate result of raising the standard of morality 
among the people in the manner described by 
Mr. Calhoun. 



Chapter XXI 
THE SOCIAL BODY MOVES UPWARD 

The body politic has new possibilities when its 
several parts, having been separately organized, are 
fitly framed together. 

WHAT, then, does it all come to ? We may 
not yet be able to see the end, but clearly 
it comes to this, that society is not a horde of hu- 
manity, but an organism of related and inter- 
dependent parts. It is not yet a fully developed 
organism, but it is rapidly becoming one. With- 
in the past twenty years enormous strides have 
been made in organizing the various branches 
of industry and when they are severally organ- 
ized, they will be ready to be joined together in 
one frame. The industrial organism has 
reached the stage where articulation begins, but 
it can not go far until the faults of early organ- 
ization are corrected. When articulation has 
taken place the whole body of industry will be 
in position to act and move as one being. It has 
been clearly apparent that the several branches 
of industry, as they existed separately, were 
playing their separate parts, each with reference 
to its own salvation, unconscious of the effect 
which the consolidation of the different indus- 
tries would have on the general result. Com- 
bination was made to get rid of competition and 



176 



FATE OF THE MIDDLE CLASSES 



effect economy in production and distribution. 
This was done solely in the interest of the capi- 
talists interested. But when it has been done 
all through the industrial field a new situation 
is created and new possibilities arise. It is as 
if the bones of the industrial frame, each with 
its appropriate muscles, sinews and nerves, were 
all at once brought together and united. Imme- 
diately the body so constituted, with all its con- 
stituent members, enters upon a new era, with 
new possibilities of locomotion and effort. As 
in the simpler forms of life, when cell is added 
to cell until an organ is built up and organs are 
added until there is a complex, but harmonious 
organism, so in industry, member is added to 
member until we have a complex and highly or- 
ganized body, compactly joined together, but 
so flexibly that it is capable of an infinite va- 
riety of movements. 

The division of labor brought about a social 
classification by which the elements of labor 
and capital, producer and consumer, carrier, 
merchant and banker, naturally associated them- 
selves in the separate and highly organized 
groups which, attached to the framework of in- 
dustry, constitute its flesh and blood, muscle and 
ligaments, thus completing the body politic. 

What can society do with this body? How 
can it better serve the whole and all its parts, 
now that the members are well developed and 



THE SOCIAL BODY MOVES UPWARD 177 

the body is joined together? The answer is 
that the members respond more readily to the 
demands of society since they are solidified 
severally and closely knit together, very much 
as a well muscled arm in a well developed man 
responds to the command of the brain with more 
quickness and power than would be possible in 
a flabby and loose-jointed body. In great emer- 
gencies like war or pestilence, when instant ac- 
tion is demanded, an electric thrill leaps along 
the nerves of organization and impels the whole 
social body to move as one man. 

Highly organized society is better able to 
resist or throw off social diseases. The great 
mass of the organized groups of labor, capital, 
bankers, merchants and carriers, have a common 
interest in uprooting the graft which has fas- 
tened itself upon every kind of business, and 
they have a like interest in casting out the poli- 
tical corruption which festers in the cities. 
When all classes bring the power of organization 
to bear on these evils, their combined influence 
will make short work of reform. 

A distinguished college president has sug- 
gested social ostracism as a cure for graft. 
Whether applied in this penal form or in the 
inspiring one of applause and distinction for 
fidelity, the effect of moral force is increased 
and intensified when the solid phalanx of or- 
ganization supports it. 



178 FATE OF THE MIDDLE CLASSES 

Experience has shown that good as well as 
bad habits are acquired more readily in the 
ranks of system than anywhere else, because of 
the perpetual reminder that system gives. Ex- 
perience in benevolence and church work shows 
this to be true. 

The co-operation of the organized classes in 
the constructive work of civilization is power- 
ful and inspiring. It has accomplished won- 
ders in great public enterprises for which im- 
mense sums of money have been raised in a 
few days by the emulation of different groups 
of men. The same method is wonderfully ef- 
fective in educational work, and is peculiarly 
powerful in the upbuilding of individual char- 
acter by the inculcation of habits of thrift, order 
and self-control. Whole classes have been lifted 
out of debt by mutual help and encouragement. 
The work of the peoples' banks in Germany and 
the Farmers' Alliance in the cotton States are 
notable examples. 

Although the work of sanitation has already 
lengthened the average life in this country, the 
regimen of the individual has not been changed 
or improved to any great extent. The progress 
so far is mainly in his surroundings. To im- 
prove the habits of the man is a work of educa- 
tion in which the moral force of organization 
is tremendously effective. The attitude of the 
Brotherhood of Locomotive engineers toward 



THE SOCIAL BODY MOVES UPWARD tfQ 

intemperance shows what organization can do 
to improve the habits of individuals. 

Organization can do a great deal for sanita- 
tion by purging the food supply of its many 
adulterations and protecting the public from 
poisonous nostrums. 

We now see how organization helps to up- 
lift the individual physically, morally and fi- 
nancially by improving his habits. It can then 
combine the resources of individuals for great 
work. Its financial possibilities are suggested 
by the fact that in England co-operation has ac- 
cumulated enough capital to duplicate the 
largest plant in that country. In this country 
a much larger fund of savings awaits invest- 
ment. It is large enough to control the rail- 
roads. 

These examples are sufficient to suggest the 
means and methods by which society, when it 
acts as an organism, can purge itself of its 
peculiar ills and lift the masses of mankind to a 
higher plane. But in all this observe that so- 
ciety as a whole must take its impulse from the 
initiative of the individual, for neither organ 
nor function can exist or act in society with- 
out the mind and the motive of men. 

In what will the difference of life consist 
when society is a complete organism ? If na- 
ture teaches any lesson it is that there is a uni- 
versal frame, as Bacon says, but with it, and all 



180 FATE OF THE MIDDLE CLASSES 

through it, ample individual liberty and free- 
will. Within very wide limits the individual 
is the architect of his own fortunes; so much 
so that many of the individuals complain be- 
cause the higher power of government or of di- 
vinity does not interfere in their behalf. 

The course of society has been similar to that 
of nature and the likeness becomes more strik- 
ing as society approaches the state of completed 
organism. 

The socialists expect a different result. They 
think individualism will disappear as collectiv- 
ism advances. In industry they take combina- 
tion to be the forerunner of State socialism. 
They think the government will be obliged to 
take over, not only natural monopolies like rail- 
ways and coal mines, but all productive indus- 
tries and all the machinery of distribution. 
They consider this step necessary to protect the 
masses against tyranny from the capitalists 
who control industry. 

Some economists who are professedly not so- 
cialists, admit that if once industry is solidly 
organized, socialism will follow. It seems to 
me that this does not follow; not only that, but 
it is highly improbable. The socialist, in taking 
it for granted that industry will always be 
owned by a few, assumes the whole ground for 
his side of the question. The evidence so far 
shows a tendency toward a rise of the masses 
in property, comfort and industrial liberty. 



THE SOCIAL BODY MOVES UPWARD ^ 

Slow but steady progress is being made by them 
in getting a share of the ownership and a voice 
in the control of industry. Eventually they are 
likely to accomplish in industry what they have 
accomplished in politics. It is true that the 
talented few administer government and control 
politics, but the popular vote determines the 
case on final appeal. After all the people con- 
trol. 

Under socialism it would not be less true that 
a few would control industry as well as politics. 
In the very nature of the case, this must be so, 
in any condition except mob rule. Even in that 
the bold and daring spirit quickly becomes the 
leader. But under socialism, while a few 
would control, the masses would be hopelessly 
submerged. The individual would be lost to 
view and the opportunities for tyranny would 
be multiplied. At the same time, while the 
hand of tyranny became strengthened, the habit- 
ual supineness of the individual, who constantly 
leaned on government for everything, would 
render him too weak to resist the encroachments 
of tyranny and he would become its easy prey. 
For this reason I consider it fortunate that 
there is a reaction against socialism. 

The organism of industry is not socialistic 
but individualistic. The dead-level policy of 
trade unions shows the effect of socialism. The 
rise of the masses can never be by socialism, but 
by the thrift of the individual and his advance 



182 FATE OF THE MIDDLE CLASSES 

in intelligence, morality and self-control. Not 
socialism but industrial democracy is the hope 
of the future. Socialism is coercive and leads to 
tyranny. The co-operative organization of in- 
dustry, which we see and which I have de- 
scribed in this book, is voluntary and has in it 
the spirit of liberty and law. 

There are those Who call this co-operative 
spirit socialism. That is with, them a matter of 
definition. I call it voluntary co-operation, and 
there is a vast difference between voluntary 
co-operation and State or municipal socialism, 
which are essentially coercive and tyrannical. 

I do not blind myself to the fact that there 
is a great deal of socialism in existing govern- 
mental institutions, but I am not among those 
who see nothing but a sea of socialism engulf- 
ing the human race. A calm retrospect of the 
course of human institutions has convinced me 
that society rarely if ever gives itself over 
wholly to the domination of any one institution. 
Institutions rise and fall and come and go. It 
has been so with monarchy, aristocracy, and the 
more or less attenuated forms of democracy. 
The only constant factor is the rise of the masses 
with the spread of intelligence and the increase 
of comfort. I do not think the race will wholly 
get rid of socialism in the near future ; perhaps 
not in the distant future. A certain amount of 
it is necessary to maintain order in thickly popu- 
lated countries ; particularly in cities ; but 



THE SOCIAL BODY MOVES UPWARD ^33 

there is constantly opposing it the robust and 
salutary force of individualism, which is of the 
essence of liberty and liberty shall not perish 
from the earth. 

Are we then to regard the trust as a philan- 
thropic institution ? By no means. Those who 
make it work out their salvation under the whip 
and spur of necessity; self-preservation is the 
law they obey. They are organized for gain and 
not for eleemosynary purposes. These indus- 
trial combinations are born under the clouds of 
industrial warfare. They take shape under 
pressure and are welded together under heat. 
When the heat of conflict has subsided and the 
cloud and danger have passed away, it is dis- 
covered that they are framed in the cold steel of 
selfishness — the same material which composes 
the structure of all industrial institutions. 
Therefore in dealing with the trust we deal with 
human nature, animated with such motives as 
have heretofore actuated it when it possessed 
large power. The wrongful use of power in this 
case is checked to some extent by the economic 
law which makes extortion work its own cure, 
but still, by the lateral extension of natural 
monopolies, through their dependencies, and 
through the welding together by patronage of 
combinations having a thread of common in- 
terest, there is danger that power will become so 
great as to threaten the subversion of our in- 
stitutions. 



184 FATE OF THE MIDDLE CLASSES 

At the risk of being misunderstood I have set 
forth at length the office of the trust and the 
benefits, near and remote, which it is likely to 
confer on the human race, and these I conceive 
to be very great. But I would not be excusable 
if I failed to point out at the same time the su- 
preme danger that always accompanies supreme 
power. It nearly always happens that institu- 
tions which have in themselves large capacity 
for good have also the capacity to do infinite 
harm, and the institution we call the trust is no 
exception, but rather a conspicuous example. 
There is danger of being lulled to false security 
by the siren voices of certain optimists who see 
in this new leviathan of industry only a beast 
of burden, with the docility and power of the 
Indian elephant, but no element of destructive- 
ness. Such harmless burden bearers exist only 
in the imagination. There is danger in every 
useful animal or institution. Since the first 
outcry of alarm which gave rise to the slogan, 
"Smash the Trusts/' there has been a reaction 
in public sentiment. It has become apparent 
that the trust is a necessity of the times, and the 
public is constantly advised to accept it as a 
natural development, which needs only to be let 
alone. Against such advice, it seems to me, 
every enlightened student of economics and gov- 
ernment ought to lift his voice in protest. That 
the instinct of the public which makes it fear the 
trust is a true one, was sufficiently proven in the 



THE SOCIAL BODY MOVES UPWARD ^§5 

great anthracite strike, when the contest between 
a combination of capital on the one side and a 
combination of labor on the other caused a coal 
famine, so distressing that it almost drove the 
country into socialism as a means of self-de- 
fense. The logic of such events has overthrown 
the arguments of the doctrinaires, and if we 
shut our eyes to the inevitable conflict that is 
ahead of us, we have no one to blame but our- 
selves. 

Once more let us lift the torch of history 
upon our path. The rise of feudalism was a 
natural development of the times, but it crushed 
and brutalized the masses to such an extent that, 
though they had been free men, they became vil- 
liens, and it took centuries to break the shackles. 
When the great task came to be done, the gov- 
ernment, backed by the masses, had to do it, be- 
cause there was no other force in society strong 
enough to cope with the barons. If government 
had not humbled them, they would have de- 
stroyed it. Do we not see a drift of things to 
the same kind of struggle at the present time ? 
Does it mean nothing that the people every- 
where demand of their representatives that gov- 
ernment put a check upon the power of corpo- 
rations and restrain their vast activities within 
proper channels? Is this a true or false in- 
stinct ? 

It is idle to say that the popular feeling on 
the subject is a craze. Crazes come and go like 



Igg FATE OF THE MIDDLE CLASSES 

epidemics, but the steady pressure of public 
opinion for decades, in season and out of season, 
among all classes and conditions of men, with- 
out regard to political party or affiliation, ever 
better informed and ever more conservative, but 
ever more confirmed in its belief that there is 
danger in combination — is such a sentiment to 
be cast aside as insignificant ? Human judgment 
is fallible, but the common judgment of well-in- 
formed men, maintained and confirmed through 
a long period, has the presumption of verity in 
its favor. As Abraham Lincoln said, "You can 
fool some of the people all the time, and all the 
people sometimes, but it is impossible to fool all 
of the people all the time." 

This inevitable conflict between govern- 
ment and combination is already begun and it 
will be the battle royal of modern times. On 
the one side the corporations, all the time be- 
coming greater and more powerful ; holding eco- 
nomic laws in their defense ; retaining the ablest 
lawyers as counsel, and the highest order of 
talent in their administration ; constantly weav- 
ing about public men a subtle web of obligation, 
invisible, and too light to be felt until it is too 
strong to be broken; too enlightened as a rule 
for bribery, but past masters in the art of intel- 
lectual, moral and political duress ; ready in dire 
extremity to let loose the hell hounds of calumny 
for the silencing of the voice of the unterrified ; 
ever present in the halls of legislation and the ad- 



THE SOCIAL BODY MOTES UPWARD -^gy 

ministrative circle ; neglecting no social influ- 
ence ; conspicuous in the public press, and even 
invading the pulpit ; confident, bold and aggres- 
sive, and fully determined to control the govern- 
ment where it touches their interests, they form 
a government within the government. 

Over against this solidified and compactly or- 
ganized force is the government and behind it 
are the people. Between the people and the cor- 
porations government stands a buffer. Public 
opinion percolates through the representatives, 
many men of many minds, some of them domi- 
nated by corporate influence, others like dema- 
gogues playing to the galleries, many vacillating 
between these groups, and a few enlightened, 
free, and firm in their determination to serve the 
common weal, without fear or favor. Naturally 
the action of such a government is slow and con- 
servative, moving only as popular pressure forces 
it. and popular pressure moving only as it is 
generated in the slow crucible of discussion, dis- 
cussion itself being hedged about with many 
limitations. But slowly, inch by inch, like a 
glacier, government moves toward its object — 
the control of corporate power. The contest is 
inevitable, for one or the other must dominate. 
No country can have two masters. The corpora- 
tions throw down the gauntlet by their presence 
in the capitols, blocking reforms, and they are 
forcing the fight in a thousand ways. It is the 
same old storv and there can be but one end : the 



188 FATE OF THE MIDDLE CLASSES 



same that came to feudalism. The time required 
to reach that end depends upon the intelligence 
and virtue of the people first, and of their repre- 
sentatives secondarily, for without intelligence 
and virtue in both, they can neither resist the 
blandishments nor overcome the opposition of 
these mighty powers. The contest will be shorter 
and perhaps sharper than that with feudalism, 
because the people are better informed, are bet- 
ter organized and are already armed with the 
ballot. Having the majority they ought to pre- 
vail. But the popular majority will not make 
good a settlement of this question if it be unjust 
to the corporations. Nothing is settled until it 
is settled right. 

I have pictured the inevitable conflict because 
there can be no peace until it is overpast. Men 
may cry peace, but only the truth is safe to ut- 
ter. Rather let us say, "Let there be light" ; let 
us bathe the whole world in its beneficent flood, 
knowing well that there is no saving health with- 
out it, and that progress in darkness is hopeless. 

Now if this Titanic struggle is forced upon us 
by the rising institution of the trust, is this new 
thing worth while? Is the game worth the 
candle ? Whether we think so or not, we are in 
the struggle and must sink or swim, live or die, 
go forward or retreat. But to my mind the 
benefits will be in proportion to the pains. So- 
ciety is not in travail for nothing at the birth 
of its institutions, for "there is a divinity that 



THE SOCIAL BODY MOVES UPWARD ^gg 

shapes our ends, rough hew them as we will." 
It were better for the race to have perished 
than to have remained in barbarism. Before 
the corner-stone of civilization was laid in the 
family, primitive man had to pass through the 
low stages of promiscuity, polyandry and poly- 
gamy, up to the monogamous relation, with the 
establishment of which he was lifted above the 
rest of the brute creation, with possibilities infi- 
nitely greater than before. Yet this great uplift 
was only the first of many in the slow stages of 
progress, and with each advance the elevation 
of the race was so great that from the new plane 
it could hardly conceive of the depths of degra- 
dation from which it had emerged. The same is 
true even to the present day. We find it difficult 
to understand the patience with which the world 
tolerated certain brutalizing customs which were 
in vogue even a century or a half century ago. 
The glorious generation which achieved our in- 
dependence looked complacently on slavery and 
imprisonment for debt. Public morals were so 
nebulous that drinking at funerals was toler- 
ated, and there was no shock until the pallbear- 
ers got drunk and fell in the grave. It was with 
difficulty that the Earl of Shaftsbury in 1842 
secured the passage of the bill which rescued the 
women who were beasts of burden in the mines, 
crawling on their hands and knees and dragging 
coal cars by a chain fastened to the neck. 

This generation lifts up holy hands, like the 



190 FATE OF THE MIDDLE CLASSES 

Pharisee, thanking God that it is not as other 
generations were, but rather should it smite its 
breast in humility and pray the prayer of the 
publican. Fifty years hence those who are left 
will look back with horror upon some of the 
conditions of this day, to which custom makes 
us callous, and blush with shame at the indiffer- 
ence with which fundamental reforms were re- 
garded. The orgies of corruption in city gov- 
ernment, with men bought and public trusts sold 
in the shambles, let us hope will one day be as 
the memory of a horrid dream. The cry of lit- 
tle children, robbed of childhood's sunny free- 
dom, stunted in body and dwarfed in mind by 
unnatural labor in tender years, with the door 
of opportunity shut in their pale, sad faces, with 
the darkness of ignorance and the hopelessness 
of despair settling on their souls, still rises un- 
heeded, or is drowned by the noise of the lobby 
and the roar of commercialism. 

There is something unspeakably cruel in those 
conditions of our society which turn plenty into 
want and convert the bounty of nature into a 
curse. 

Our vaunted industry mocks itself when its 
tremendous activity brings an ever-recurring 
surplus that depresses markets and paralyzes 
productive energy. How cruel is the irony of 
fate when the abundance of food causes chil- 
dren to cry for bread and the surplus of fiber 
brings the producer to rags! This is the dark 



THE SOCIAL BODY MOVES UPWARD i§± 

riddle of our civilization which the trust will 
help to solve, and to have solved it will be worth 
all our generation has done or suffered. 

Will the trust liberate the children and es- 
tablish pure government? Hardly, but it is a 
stage in the progress that will, just as feudalism, 
hateful as it was, became a stepping-stone to lib- 
erty. We can take but one step at a time. We 
can not mount the second until we have taken 
the first, and the trust is the stone that is 
just ahead of us. It looks like a stumbling-block 
but the stumbling-blocks of the present are the 
stepping-stones to the future. It is the sinister 
humor of progress to mock mankind by placing 
ahead of each generation a bridge of asses which 
it must cross before any further advance can be 
made. The trust is the pons asinorum of our 
time. 

But there is no reason to be discouraged when 
doubt and difficulty arise in our path. "The 
best reforms of this earth come through waste 
and storm and doubt and suspicion." If the 
earth rocks we may be sure that elemental forces 
are at work, and if society cries aloud and its 
body is almost rent in twain, we may be sure 
that something great has come to birth. 



FINIS 



INDEX. 



Africa Pre-empted by Europe, 
49. 

Agitation Caused by Organiza- 
tion, 127. 

Agricultural Population, Dis- 
tress of, 9. 

Agriculture, Scientific, 46. 

Agriculture, Slow Progress in, 
46. 

Agriculture, Room for Im- 
provement, 49. 

Alternative Craft, 68. 

Anthracite Strike, 126. 

Anthracite Coal Combination, 
76. 

Arable Land Under Culture, 
46. 

Art, Works of, 25. 

Articulation of Society, 164. 

Audit, Compulsory, 133. 

Bacon,103, 178. 

Baker Ray, Stannard, 116. 

Bankers, 41, 125. 

Banking Organized, 99. 

Banks, 36. 37, 38, 53, 133. 

Banks, Pool of, 34, 38. 

Bank Collateral, 34. 

Bank Deposits, 152, 153. 

Barometer of Prosperity, 29. 

Battle Royal, 187. 

Beasts of Prey Fewer Than 
Men Who Hunt Them, 89, 92. 

Bell Adjutant General, 111, 
112. 

Birmingham Miners, 116. 

Bismarck Failed With State 
Help, 160. 

Builder Limits Production, 57. 

Building and Loan Associa- 
tions,, 138. 

Body Politic, 2, 58, 128, 175. 

Bonds, Relation to Fall in 
Prices, 24. 

Boom Years, 21. 

Bounty of Nature a Curse, 190. 

Boycott, Used by Employers, 
107, 113. 

Boyles, J. C, 60, 62. 

Boxer Outbreak, Effect on Cot- 
ton Mills, 6. 

Bread, 1. 

Building and Loan Associa- 
tions, 162. 



Burns, John, 168. 
By-Products, 50, 51. 

Calamity, Dread of, 26. 

Calhoun, John C, 168, 170, 
172, 173. 

Canadian Railways Profit by 
American Overproduction, 
62. 

Cartels, German, Influence of, 
64, 65. 

Capital, 13, 24, 171. 

Capital Created by Poor Men. 
159. 

Capital, Separation From La- 
bor, 101. 

Capital, Transfer of, 67. 

Capitalists, More Comfortable, 
155. 

Capital and Labor at War, 
126. 

Capitalists' Equity in Price, 
122. 

Carnegie, Andrew, 145. 

Carnegie, Policy of, to Men, 
147-150. 

Cash Credit, 160. 

Catholic Church and Loan As- 
sociations, 161. 

Chicago Metal Trades Associa- 
tion, 115. 

Chicago, Strike of 1894, 106. 

Child Labor, 190. 

Children Cry for Bread, 26, 
191. 

China, Subsistence in, 46. 

Chinaman's Allowance, 48. 

Check on Industry, 4. 

Cincinnati Poor Girl, 1. 

Cities, Corruption in, 174. 

Cities Robbed of Rights, 95. 

Citizens' Alliance, 109-114, 
139. 

Civilized Countries That Can 
Not Feed Their People, 46. 

Civilization and Productive 
Methods, 48. 

Class Antagonisms, 166, 167. 

Class Checks and Balances, 
129. 

Class Domination, 164. 

Class Legislation, 167. 

Classes, Struggle of '95, 117. 

Class Representation, 164-173. 



194 



FATE OF THE MIDDLE CLASSES 



Clearing-House of Industry, 
66. 

Closed Shops, 107, 108. 

Clothes, Production of, 25, 57. 

Coal, Price of, 1. 13. 

Coal Famine, 127, 171, 172. 

Coal Miners, 1, 171. 

Coal, Production and Price, 
12. 

Coal, Too Much, 25. 

Coercion Barred, 107. 

"Cohesive Power of Public 
Plunder," 96. 

Colorado, Mine Explosion, 110. 

Colorado Miners Expelled, 110. 

Collateral, Shrinkage of, 39. 

Colt, Samuel P., Quoted, 78. 

Combinations, 15, 36, 49, 64, 
67, 75, 76, 81, 85, 86, 89, 
117-120, 140, 145, 152, 153, 
186. 

Combination, Conflict With, 
185. 

Combination, Effect on Indi- 
viduals, 145. 

Combinations of Organized 
Capital With Organized La- 
bor, 117-120. 

Combinations to Raise Prices, 
140. 

Comfort of Living, 68. 

Commercial Relations, Salu- 
tary Effect of With Other 
Countries, 73. 

Commercialism, 190. 

Commissions on Cause of De- 
pression, 23. 

Commodities, Decline of Prices, 
26. 

Commons, John R., 33. 

Community of Interest, 84, 
131. 

Competition, 10, 14, 64, 74, 
75, 77, 78. 

Competition, Shall It Survive, 
74. 

Competition Unrestrained, 75. 

Confidence, Lack of, 27, 28. 

Confidence Shaken, 133, 134. 

Conflict Irrepressible, 93, 188. 

Congress, R. R. Rates in, 94. 

Concurrent Majority, 168, 175. 

Consumer, 117-140, 171. 

Consumer, Organization of, 
117-140. 

Consumers, Greatest Group, 
100-125. 

Consumers, Equity in Price, 
122. 

Consumers, Measures to Pro- 
tect, 139. 

Consumers' Leagues, 139. 



Consumption, 4, 17, 32, 33, 56. 

Co-operation, 16, 53, 55, 59, 
117, 138, 156, 158-163, 179. 

Corn Burned, 1. 

Corn Crops, 18. 

Corn Sheller, Effect, 47. 

Corn Supply, 7, 25. 

Corporation, 34, 35, 95, 133- 
135, 185. 

Corporation Rule, 95. 

Corporation Reform, 133-135, 
185. 

Corruption, 94, 190. 

Cost of Production, 5, 123. 

Court Decisions Against Com- 
binations Exclusive, 121. 

Crazes, Popular, 186. 

Credit, Basis of, 27-40. 

Credit, Contraction of, 30, 36. 

Credit as Medium of Exchange, 
40. 

Crops, Lesson of, 17. 

Cotton Acreage, 10. 

Cotton Crops, 6, 17-22. 

Cotton Industry, 6, 9, 17. 

Cotton Mills, 5, 53. 

Cotton Planters, 7, 53. 

Cotton, Price, 6. 

Cotton Supply, 11, 22, 26, 52, 
53. 

Cotton Relieves Depression, 72. 

Counter-Organization, 142. 

Currency, Expansion and Con- 
traction, 29, 34. 

Dairy and Garden Products, 

31, 32. 
Dead-Level Policy of Trades 

Unions, 181. 
Demand and Supply, 2, 3, 20, 

52, 55, 59, 67, 123, 191. 
Demand, Remunerative, 67. 
Democracy, 88, 151, 182. 
Department of Agriculture, ^6. 
Depression, 1, 3, 6, 23, 26. 
Depression, Causes of, 23. 
Depression, Effect of, 52. 
Depression in Cotton Mills, 6. 
Depression, Years of, 19-21. 
Detectives Used by Employers, 

114. 
Discrimination, 131. 
Disorders, Complication of, 28. 
Distribution, 98. 
Ditchett, S. H., 4. 
Diversified Products, 5, 6. 
Division of Labor Cause of 

Overproduction, 14, 52. 
Dobransky, Testimony of, 161. 
Dollars Worked Harder, 31. 
Driscoll, John C, 118. 



INDEX 



195 



Dry Goods Economist Quoted, 

4. 
Dullness in Manchester Mills, 

7. 
Dun's Index of Prices, 26-30. 
Duress in Politics, 187. 

Earnings of Labor, Average 
Rising, 150. 

Economic Framework, Comple- 
tion of, 128. 

Economic Indigestion, 2. 

Economy in Production, Need 
of, 45. 

Economic Law Checks Extor- 
tion, 183. 

Economists, Opinion on Mon- 
opoly, 75. 

Educational Facilities, 25. 

Edward III., Guilds Under, 
102. 

Elephant, the Indian, 184. 

Employment Affected by Price, 
24, 53. 

Employers' Associations, 108, 
109, 113, 115. 

Employers Intolerant, 166. 

Equitable Life Assurance So- 
ciety, Corruption in, 132. 

Equitable Pioneers, 159, 160. 

Evils, 130-132. 

Exchange, 98, 99. 

Exchange of Information, 68. 

Exchange of Products, 16. 

Fabrics, Diversified, 11. 

Fall of Commodity Prices, 

Greatest, 35. 
Falling Market, 28. 
Family of Industry Separated, 

54. 
Family, Primitive, Regulation 

of Production in, 54. 
Farms, Per Cent. Owned, 152. 
Factories Closed by Low 

Prices, 24. 
Factories Run at Loss, 14. 
Farmers, 125. 
Farmers Without Meat, 26. 
Farmers' Statistics, 53. 
Farmers' Alliance, 166. 
FarmersV Alliance Lifted 

Farmers Out of Debt, 137. 
Farmers' Associations, 162. 
Farmers' Case, Typical, 7-10. 
Farmers in Middle Class, 151. 
Fat Years, 21. 
Federation of Combinations, 

65, 66. 
Federation of Labor and Capi- 
tal, 124. 



Federal Court Order Resisted, 
106. 

Feudalism, 167, 184, 191. 

Fertilizer Bought, 8. 

Financial Strength Impaired, 
9. 

Financial Strength of Masses, 
162. 

Fixed Charges, Relation to 
Fall in Prices, 24. 

Flail, Use of, 47. 

Fluctuating Prices, 27. 

Food Crops, 8. 

Food, Scarcity of, 11. 

Food, Supply of, 25. 

Franchise Grabbers, 95, 150. 

Frankenstein, Is It a New, 89. 

Freight Blockade Due to Over- 
production, 63. 

Fuel Supply, 25. 

Functions, Economic, 98. 

Future, Production in the, 45, 
48. 



Gainful Workers Classified, 
125. 

German Consols, Low Price of, 
64. 

Germany, Depression in, 7 ; 
Rate of Increase in, 45 ; 
Density of Population in, 46. 

Georgia Farmers Lifted Out of 
Debt by Organization, 137. 

Gladstone on Thrift, 158. 

Government and Classes, 164- 
174 ; Acts When Majority 
is Organized, 141 ; Can Not 
Remain Inactive, 172. 

Government Control of Monop- 
oly, 74, 86. 

Government, Who Shall Con- 
trol, 74 ; Dominated by Or- 
ganized Classes, 97 ; Organi- 
zation Necessary to Effi- 
ciency of, 125. 

Government Regulation, 136. 

Government Ownership, 127. 

Government Like Glacier, 187. 

Graft, Debasing Effect of, 134, 
135. 

Grain, Farmers Organization 
of, 137. 

Grain Crops Relieved Depres- 
sion, 70. 

Granger Stocks and Grain 
Crops, 70. 

Great Name, Influence of, for 
Good or Evil, 43. 

Guilds of Craftsmen, 102 
Cost of Membership in, 103 
Political Opinion of, 102 
Bacon's Opinion of, 103. 



196 



FATE OF THE MIDDLE CLASSES 



Guilds, English, Political 
Power of, 164. 

Guilds, Statutes on, 103 ; 

Guilds Swept Away by Refor- 
mation, 104. 



Habits in System, 178. 

Hand Trades Belong to 
Masses, 152. 

Hens Lay in Warm Weather, 
32. 

History. Torch of, 185. 

Hocking Valley Miners, 1. 

Holyoake on Equitable Pio- 
neers, 159. 

Homes, Per Cent. Owned, 152. 

Houses, 25. 

Human Race, Rise of, 189. 

Idleness of Men, 26. 

Ill-Adjusted Production, 6, 10. 

Illinois Coal Operators, 115, 
116. 

Improvement, New Fields for 
in Economy of Production, 
50. 

Independence Mine Horror, 
111. 

Individualism, 143, 180. 

Individual, Effect of Combina- 
tion on, 145. 

Individuals, Gain of, 25. 

Individual Initiative, 161, 179. 

Individual Liberty, 180. 

Industries, Disaster to, 25. 

Industry, Army of ; Economy 
in, 15 ; Effect on Politics, 
165 ; Misfit of, 1 ; Mocks It- 
self, 190. 

Industrial Democracy, 182. 

Industrial Warfare Destruc- 
tive, 15. 

Inflationist View, 30, 31. 

Initiative Lost, 145. 

Injunction Used by Labor, 114. 

Instability of Watered Stock, 
Chief Danger From, 43. 

Instincts of Humanity, 164. 

Insurance Companies, Assets 
Used for Private Gain, 99. 

Insurance, Organized, 99, 125. 

Intemperance, 177, 178. 

International Conflicts in In- 
dustry, 15. 

International Demand, Effect 
of, 72, 73. 

Interdependence of Industry, 
70. 

Interest Rates, Decline of, 13, 
80. 

Irish Potato, Fatal Gift, 7. 



Iron and Steel, Demand for, 
15, 70 ; Overproduction of, 
36. 

Iron Furnaces Bank Fires, 70. 

Irrepressible Conflict, 93. 

Invention, 49. 

Investigation, 133. 

Investment Stocks, 153, 154. 

Investor, Peril of, 131 ; Mea- 
sures to Protect, 133. 

Joint Agreements, Tendency 
to, 121. 

Job, Mgr. of Employers' Asso- 
ciation in Chicago Strike, 
113. 

Joint Liability, 160, 161. 

Journal of Commerce, 77, 81. 

Justice Requires Support, 98. 

Justice Before Peace, 98. 

Knight Dropped in Modern 
World, 157. 

Labor, 171. 

Labor and Capital, Total Re- 
wards of, 23 ; Separation of, 
101 ; Shooting at Each 
Other Hit the Consumer, 
117 ; Wasted by Overproduc- 
tion, 17. 

Labor's Equity in Price, 122. 

Labor Leaders, Many Unpur- 
chasable, 139. 

Labor Must Be Kept Together, 
11. 

Labor-Saving Machinery, 66, 
80. 

Labor, Transfer of, 66-68 ; 
Union Methods Used by Em- 
ployers, 113 ; Voice in Con- 
trol of Industry, 151. 

Laveleye, Testimony of, 161. 

Law and Order Leagues, 139. 

Lean Years, 21. 

Level of Prices, 30, 31. 

Lincoln, A., Quoted, 185. 

Liquidation, Forced by Banks 
That Promoted Stocks, 41. 

Lobby, 189. 

London, Guilds in, 102. 

Lumber Mills Control Produc- 
tion, 53. 

Machine Production. Von 

Halle on, 64. 
Machinery, Deterioration of, 

11. 
Machinery of Production, New, 

16. 
Machinery Displaced by New, 

14. 



INDEX 



197 



Machinery of Future in the 
Making, 49. 

Manchester Mills, Dunness in, 
7. 

Manufacturer As Organizer, 
139. 

Manufacturers Affected, 10. 

Manufacturers Diversify Prod- 
ucts, 5 ; Draw Nearer to 
Consumers, 99 ; Position of, 
126. 

Martial Law in Colorado, 111. 

Masses Rising, 150. 

Masses, Savings of, 151, 158- 
163. 

Mason, Consul-General, 63. 

Meade, Dr. Edward S., on In- 
vestment, 153. 

Men Indispensable to Capital, 
146. 

Merchants Organization, 99. 

Merchants Boycott, 125, 166. 

Merging of Classes, 142. 

Methodist Book Concern, 119. 

Miners Go Hungry, 26. 

Misdirected Energy in Cotton, 
6. 

Misfit of Industry, 1, 2, etc. 

Mitchell. John, 138. 

Middle-Class, Savings of, 151 ; 
In Majority, 125. 

Milk Supply in Summer, 32. 

Mills, Increase of, 21. 

Monogamy, 188. 

Monopoly, Natural, 74. 

Monopoly, Era of, 75. 

Monopolies Fostered by Rail- 
ways, Destructive Competi- 
tion of, 140. 

Monopoly or Supreme Power 
Inseparable From Tyranny, 
86. 

Money Circulation, Volume of, 
29, 30. 

Money, Stable Value of, 40. 

Morals Improved by Organiza- 
tion, 178, 179. 

Morality of People, Calhoun 
on, 173. 

Morgan, J. P., Influence of Ex- 
ample as Promoter, 42, 43. 

Moulders' Union, 115, 116. 

Mules Bought, 8. 

Municipal Law Extended to 
Corporations, 135. 

Murder by Wholesale, 16. 

McClure's Magazine, 116. 

Nails, Production Regulated, 

53. 
Nature, Teaching of, 17, 179, 

180. 



Natural Monopoly, 74, 76. 136. 

New Competition for Labor 
Liberated by Machinery, 13 

New Enterprises Set on Foot 
Make Opportunities, 14, 146. 

Newspapers Bought or Subsi- 
dized, 95. 

Newspaper Publishers, 115. 

New York City, Combination 
of Builders and Unions in, 
120. 

New York Times Articles, 4. 

North American Review, 148. 

Oil Wells as Natural Monop- 
olies, 76. 

Olcott, A. D. Boycotted by Cit- 
izens' Alliance, 110. 

Organization and Government 
Regulation of Monopoly, 
136 ; Compels Peace, 97 ; 
Genius for, in America, 138, 
139 ; Lack of Causes, De- 
feat and Demoralization, 
97 ; of Consumer, 125 ; 
Work of, 130. 

Organism, Society as, 129, 
179. 

Organized Labor More Con- 
servative When Interested, 
155. 

Ostracism Used by Employers, 
113. 

Omaha, Labor Uses Injunc- 
tion, 114. 

One-Crop Farmers, 9. 

Overproduction, 2, 13, 59 ; 
Cumulative, Effect of, 30 ; 
Checks Transportation, 70, 
71 ; in Cotton Mills, 5 ; In- 
creased by Progress, 13 ; in 
Iron and Steel, 36 ; Effect 
on Price, 29, 33 ; Upsets 
Business, 23 ; of Stocks, 36. 
131. 

Overcapitalization, 36, 81. 

Overcapitalization, Law to 
Check, 133 ; Reasons Offer- 
ed in Justification of, and 
the Reply, 42. 

Ownership of Industry, 181. 

Overflow Industries, 68. 

Panama Canal, 162. 

Panics, 1-2 ; Contracted Credit 
Causes, 133 ; Industrial 
Stagnation Causes, 27 ; At- 
mosphere Favorable to, 134 ; 
Origin of, 23 ; Supplemen- 
tary Causes, 27 ; Relieved, 
70. 

Parks, Sam, 108. 



198 



FATE OF THE MIDDLE CLASSES 



Parke, Robert E., Treasurer of 
Georgia on Farmers' Sav- 
ings, 151. 

Parry, D. M., 109, 110. 

Patronage, Power of, 82, 83, 
84, 85, 131. 

Peace, Pinal Result of Organ- 
ization, 128. 

Peoples' Banks, 159-161. 

Periods of Prosperity and De- 
pression, 19. 

Pharisee, This Generation a, 
190. 

Picketing, Counterpart of, 114. 

Pig Iron, Production and 
Price, 12 ; Exported, 73. 

Pittsburgh Strike, 1877, 106. 

Planters, Cotton, 7. 

Plenty Aurned to Want, 190. 

Plows, Old Fashioned, 47. 

Political Changes, 164. 

Political Campaigns on Cor- 
poration Issue, 94. 

Political Parties, Classes in, 
164. 

Politics, Worst Elements In- 
voked to Aid Corporations, 
87. 

Polyandry, 189. 

Polygamy, 189. 

Population, Stationary, 48. 

Pons. Asinorum, Trust a, 191. 

Power, Abuse of, 91, 92, 124, 
129, 185. 

Predatory, 96. 

Prices, Average Level of, 13, 
24, 29, 32; Control of, 59; 
Fair, 58; Fall of and Idle- 
ness, 33 ; of Cotton, 8 ; Cut 
Down by Surplus, 3 ; De- 
pression of, 11 ; Process of 
Adjustment, 25 ; as Symp- 
tom, 25. 

Promoter, 38, 42, 133. 

Producer, Loses Labor, 22 ; 
Interest of, Crippled, 50, 
140, 191. 

Production, Stimulated, 11 ; 
Ill-Adjusted, 8, 14 ; Regula- 
tion of, 52, 53, 55, 56, 98; 
Masses Divorced From, 132 ; 
Checked by Surplus, 57. 

Production and Price, 12, 22, 
98. 

Productive Methods, 46. 

Productive Machinery, 25, 26. 

Products Thrown Away, 50. 

Promiscuity, 189. 

Prosperity, 3, 19, 21, 29, 172. 

Protection by Organization, 
129. 

Profit,' 51, 52. 



Psychological Factor, 26-27. 
Publicity Needed, 88, 134. 
Public Morals, 189. 
Public Opinion, 56, 127, 186, 

187. 
Publicists, 7. 
Public Utilities, 150. 
Punishment of Guilty, 134. 
Purchasing Power, 3, 19, 20, 

21, 24, 25, 50. 

Raffeisen Loan Associations, 
160. 

Railroads, Effect on Business, 
70, 71 ; Unable to Move 
Freight, 71 ; Discrimination, 
82, 83, 140 ; Rate Wars, 55 ; 
Community of Interest in, 
55; Stocks of, 35, 39, 76; 
Strongest Natural Monopo- 
lies, 76 ; Traffic of, 126 ; 
World Without, 47. 

Raleigh, Sir Walter, 7. 

Ratio of Money to Clearings, 
31. 

Rebates, Secret, 82. 

Recreations, 25. 

Reform Bill, 189, 190. 

Reform, 41, 191 ; Blocked, 188. 

Regulation of Production, 5Y, 
58, 65, 70, 91, 122. 

Regulation of Railroad Rates, 
94 ; of Natural Monopolies, 
88. 

Remedies, 132. 

Returns, Aggregate of All In- 
dustries, 23. 

Revolution, Industrial, 164. 

Republic of Industry, 156. 

Return for Corn Crop, Aver- 
age, 19. 

Rise and Fall, Alternate of 
Prdopoj ^1 

Rise of Masses Only by Thrift, 

181. 
Roosevelt, Settlement by, 107. 
Rostand, Evidence of, 161. 
Rubber Trust, Experience of, 

78, 79. 

Savings Banks, 148, 151, 153, 
162. 

Savings Bank Deposits Would 
Control Railways, 153. 

Sand, House Built on, 40. 

Sage, Russell, Raised Warn- 
ing Voice, 43. 

Salaried Man, Opportunities 
for, 146. 

Sanitation and Regimen, 178, 
179. 

Say, Leon, Remark of, 161. 



INDEX 



199 



Scale of Pay Fixed Yearly, 
116, 

Science, Effect on Production, 
45. 

Schmidt, Dr., Statistics of 
Peoples Banks, 160. 

Schultze, Apostle of Self- 
Help, 160. 

Schwab, Charles M., 145; on 
Opportunity, 148, 149, 150. 

Scotch Banks, 160. 

Seasons, Influence of on 
Prices, 3. 

Segregation and Integration, 
Remedy for Caste, 142. 

Separation of Classes, 98. 

Separation of Labor and Capi- 
tal, 101. j 

Series, Bad Years Come in, 19. 

Shaftsbury, Earl of, 189. 

Shipbuilding Trust, 36. 

Shippers Appeal to Courts, 
140. 

Shrinkage of Value Curtails 
Purchasing Power, 6. 

Shrinkage of Price, Loss 
From, 26, 27. 

Shylocks Lost Grip, 161. 

Shoes, Production of, 57. 

Sickle, 47. 

Silk Industry, 4. 

Slump, Enormous in Watered 
Stock, 44. 

Society Loses by Low Prices, 
25 

Social Body Rising, 175. 

Social Diseases Resisted by 
Organization, 177. 

Society an Organism, 175, 176, 
179. 

Social Ostracism, 177. 

Socialism, 143, 147, 180, 182. 

Society, 26, 128. 

Society, Wants of, ncrease, 47. 

Southern Cotton Association, 
55, 137. 

Southern Farmers Affected, 9. 

Southern Farmers in 1904, 10. 

Speculation, 61, 150. 

Specialization, 68. 

Spencer, Herbert, Quoted, 74, 
164. 

Spindles, Increase of, 21. 

Sponge, Volume of Watered 
Stocks Compared to, 40, 
132. 

Stability of Industry, How Ad- 
vanced, 128. 

Standard Oil Co., 77, 82. 

State and Federal Govern- 
ments, Relation to Reforms. 
136. 



State Socialism, 127. 

Steel Corporation, 60. 

Steel Rail Pool, 59, 60, 62, 63. 

St. Louis, Corruption in, 95. 

Stocks, Boom and Slump of, 

34, 35. 
Stock Companies, Promotion 

of, 42. 
Stock as Basis of Credit, 39. 
Stock Market, Influences Af- 
fecting, 35 ; Ground Swell 

and Slump in, 35. 
Stock, Risk of Buying by 

Workingmen, 148. 
Stockholders, Quarrels Among, 

35. 
Stockholders, Increase of a 

Protection to Corporations, 

154. 
Stock, Why Accepted as Col- 
lateral, 38. 
Stove Founders, 53, 115. 
Struggle for Existence, 45. 
Struggle of the Classes, 117. 
Stumbling-Blocks, 191. 
Subsistence in United States, 

47. 
Suffrage, Calhoun on, 172, 173. 
Supply of Cotton Reduced by 

Farmers, 137. 
Surplus, 2, 3, 20, 29, 52, 55, 

59, 123, 191. 
Supply and Demand, 2, 3, 20, 

29, 52, 59, 123, 191. 
Sun and Moon Mine Explosion, 

110. 

Tariff is Class Legislation, 
167. 

Tariffs Favor Development of 
Trusts, 90. 

Three Parties Have Equities 
in Price, 122. 

Thrift, Effect on Investment, 
154. 

Thrift, Worldwide Uplift by, 
158, 163; Moral Effect of, 
161 ; in United States, 162. 

Times Out of Joint, 26. 

Titanic Struggle, 188. 

Toilers, Suffering of, 15. 

Total Loss to Producer Indi- 
cated by Fall of Price Level, 
26. 

Trade, Languishing, 9. 

Trade Unions, 104, 105, 106, 
107, 109, 138, 166. 

Traffic Interfered with by 
Strike, 106. 

Transportation by Old-Fash- 
ioned Methods Impossible, 
47. 



200 



FATE OF THE MIDDLE CLASSES 



Transportation Checks Produc- 
tion, 71. 

Transportation, Organization 
of, 98. 

Transportation, 125. 

Trusts, 1, 41, 90, 131, 182, 
184, 191. 

Trust Funds, 41. 

Typothetae, 115. 

Tweed Ring, 95. 

Underwriting Syndicate Head- 
ed by Powerful Banks, 38. 

Unemployment, 33, 72. 

Unification of Industry Does 
Not Force Socialism, 143. 

Union Card Used by Citizens' 
Alliance, 114. 

Union Miners Discharged, 112. 

U. S. Army Stops Strike, 106. 
Government, 119. 

United States, Future Popu- 
lation of, 45, 46. 

United States Industrial Com- 
mission, 119. 

United States Senate, 169. 

United States, Steel, Decline 
of, 35, 61, 62, 76, 77, 78, 
107, 132, 149. 

Usurers' Lost Grip, 161. 

Uplift by Co-operation, 178. 



Uplifting of the Masses, 87. 
Unemployed and New Indus- 
tries, 80. 



Violence, Labor's Danger, 106. 

Von Halle, Ernest, Quoted on 
Regulation of Production in 
Germany, 63, 64, 66. 

Wages, 51, 52, 58, 72. 

Wage-Earners F i n a n c i a 1 
Strength of, 155 ; Odle, 2. 

Wall Street, 41, 42. 

Wants, Multiplying, 67. 

War, 45, 74. 

Waste, 15, 172. 

Watered Stock, 39, 41, 131. 

Waves of Prosperity, 3. 

Wells, David A., 47. 

Wheat in Receiver's Hands, 
34. 

Wheat Growers, 9. 

Wolff, Henry, 160, 161. 

Workingmen, Business Capac- 
city of. 156 ; Opportunities 
for, 148 ; Why They Do Not 
Rise, 147 ; Savings of, 152. 

World's Comfort, 45. 

World's Granary, 48, 49. 

World's Needs, 17, 20, 22. 



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